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 Teck Resources (NYS: TCK) 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 Teck Resources.
What We Want to See
Pass or Fail?
5-Year Annual Revenue Growth > 15%
1-Year Revenue Growth > 12%
Gross Margin > 35%
Net Margin > 15%
Debt to Equity < 50%
Current Ratio > 1.3
Return on Equity > 15%
Normalized P/E < 20
Current Yield > 2%
5-Year Dividend Growth > 10%
6 out of 10
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
With six points, Teck Resources is staying on the right side of the center line. The commodity producer has seen its stock perform miserably so far this year, but future trends could have it poised for future success.
Teck gives investors an interesting combination of products tied to the health of the global economy. With its copper production, Teck competes against Freeport-McMoRan Copper & Gold (NYS: FCX) and Southern Copper (NYS: SCCO) for sales created by emerging-market growth in infrastructure and housing. Yet Teck also produces metallurgical coal, going up against Alpha Natural Resources (NYS: ANR) and Arch Coal (NYS: ACI) in an industry that has seen some large expansion recently.
Teck has recovered nicely from the quandary it found itself in during the financial crisis. At the time, the company had to sell its stake in its Hemlo Mines joint venture to Barrick Gold (NYS: ABX) at a ridiculously cheap price. But with the health of the global recovery now in danger, shares have once again started to fall from their early-2011 highs.
Fortunately for those looking to pick up shares, Teck now trades at an attractive valuation that takes those potential bumps in the road into account. Teck isn't perfect, but if the global economy can defy naysayers and continue to expand, the company may start looking a lot better soon.
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 thisarticle was published Fool contributor Dan Caplinger doesn'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 a disclosure policy.
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