Is AuRico Gold the Perfect Stock?
Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?
One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if AuRico Gold (NYS: AUQ) fits the bill.
The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:
- Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
- Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
- Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
- Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
- Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
- Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.
With those factors in mind, let's take a closer look at AuRico Gold.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||63.7%||Pass|
|1-Year Revenue Growth > 12%||35.9%||Pass|
|Margins||Gross Margin > 35%||64.4%||Pass|
|Net Margin > 15%||20.0%||Pass|
|Balance Sheet||Debt to Equity < 50%||3.8%||Pass|
|Current Ratio > 1.3||2.98||Pass|
|Opportunities||Return on Equity > 15%||7.5%||Fail|
|Valuation||Normalized P/E < 20||26.34||Fail|
|Dividends||Current Yield > 2%||0%||Fail|
|5-Year Dividend Growth > 10%||0%||Fail|
|Total Score||6 out of 10|
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
With a score of 6, AuRico isn't quite golden, but it's performing pretty well. The gold miner formerly known as Gammon Gold changed its name earlier this year after completing a takeover of Capital Gold. Now, AuRico has just announced what could be a much more important, game-changing deal.
Until recently, AuRico was mired in controversy. After scaring shareholders by closing its El Cubo mine last year because of labor issues that it couldn't resolve, AuRico had to refocus its efforts on its flagship Ocampo mine. Yet as Fool gold expert Christopher Barker noted early on, the company's prowess at exploration gave it far better long-term prospects than fearful short-term investors gave it credit for. And with low costs that compare favorably with Yamana Gold (NYS: AUY) , AuRico is getting a lot of bang for its buck at the quickly growing Ocampo operation.
Now, though, AuRico has moved into the big leagues, announcing a deal to buy Northgate Minerals (ASE: NXG) , which will give the company greater geographical diversification as well as a big increase in its reserves. Given that consolidation has given a competitive advantage to dealmakers New Gold (ASE: NGD) and Goldcorp (NYS: GG) , it's more important than ever for AuRico to keep up its winning ways if it wants to maintain its growth and build its status as a player in the industry.
AuRico has made bold steps in short order. In a hot industry, that's a smart strategic move, and as long as the gold rush continues, AuRico should continue to play a big role in it.
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.
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At the time this article was published Fool contributorDan Caplingerdoesn't own shares of the companies mentioned in this article. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has adisclosure policy.
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