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 and then decide whether Mondelez International (NAS: MDLZ) 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.
Moneymaking 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 Mondelez International.
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%
3 out of 10
Source: S&P Capital IQ. Total score = number of passes.
Mondelez International scores only 3 points, leaving it short of where Kraft scored last year. But investors are looking for a great deal from the newly split-off company going forward.
Mondelez holds the surviving global snack business of Kraft, which recently broke into two parts. Kraft Foods Group (NAS: KRFT) retained the company's North American grocery business, which most analysts pegged as having slower growth prospects.
But Mondelez will face some big challenges going forward. Last year, the company played no role whatsoever in the battle for Pringles, which Procter & Gamble (NYS: PG) put up for sale. Initially, Diamond Foods (NAS: DMND) bid for the division and planned to use the acquisition to diversify beyond its nut-centered business. But when that deal went south, Mondelez failed to step in, and Kellogg (NYS: K) ended up winning the prize.
Now, though, Mondelez should be in better position to compete. Without the overhang of the impending split, Mondelez can move forward confidently to reap the benefits of greater concentration in the snack space and seek the same growth from worldwide markets that has driven much of PepsiCo's (NYS: PEP) higher sales in Latin America and Europe.
For Mondelez to improve, it will need to work on boosting revenue growth and getting its somewhat high debt load paid down. In the meantime, though, investors will enjoy the healthy dividends they'll receive along with the potential for the stock to get much closer to perfection in the years ahead.
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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The article Is Mondelez International the Perfect Stock? originally appeared on Fool.com.
Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend PepsiCo and Procter & Gamble. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.