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 Navios Maritime Partners (NYS: NMM) 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 Navios Maritime Partners.
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: S&P Capital IQ. Total score = number of passes. *4-year growth rate.
With six points, Navios Maritime Partners appears to put in a relatively attractive financial performance. But the stock's price has fallen by nearly 10% over the past year, forcing investors to rely on its lucrative dividend to achieve returns.
Navios Maritime Partners is a master limited partnership that is controlled by Navios Maritime Holdings (NYS: NM) . It current operates a fleet of 21 vessels, 19 of which it owns and two of which it holds under long-term charters.
The shipping industry hasn't been kind to companies in the space lately. In the dry-bulk space, low shipping rates have challenged industry giants DryShips (NAS: DRYS) and Diana Shipping, as a glut of capacity has forced dayrates downward for a long time. Tankers haven't done much better, with Frontline (NYS: FRO) and Nordic American Tankers (NYS: NAT) seeing declines as increased oil production in the U.S. has reduced the need for worldwide transportation of energy products.
Yet Navios Maritime Holdings has held up reasonably well during the crisis, thanks to contracts with Asian counterparties that are still seeing fairly strong growth. Moreover, Navios Maritime Partners has been insulated even further from the turbulence in the industry, with its massive dividends acting as ballast against the storms other industry players have seen.
For Navios Maritime Partners to improve, the key is to make sure its dividend yield is sustainable. If a long-awaited rebound in shipping does happen, it would just be icing on the cake for the MLP in its quest for perfection.
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.
No matter what industry you follow, the best investing approach is to choose great companies and stick with them for the long term. In our free report "3 Stocks That Will Help You Retire Rich," we name stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.
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The article Is Navios Maritime Partners the Perfect Stock? originally appeared on Fool.com.
Fool contributor Dan Caplinger has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. 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 Motley Fool has a disclosure policy.
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