Has Fidelity National Financial Inc (FNF) Become 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?

Fidelity National Financial IncOne 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 Fidelity National Financial Inc (NYSE:FNF) 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 Fidelity National Financial.

Factor What We Want to See Actual Pass or Fail?
Growth 5-year annual revenue growth > 15% 5.7% Fail
1-year revenue growth > 12% 48.8% Pass
Margins Gross margin > 35% 58.3% Pass
Net margin > 15% 8.4% Fail
Balance sheet Debt to equity < 50% 28.3% Pass
Current ratio > 1.3 2.97 Pass
Opportunities Return on equity > 15% 14.4% Fail
Valuation Normalized P/E < 20 10.62 Pass
Dividends Current yield > 2% 2.6% Pass
5-year dividend growth > 10% (13.5%) Fail
Total score 6 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Fidelity National Financial last year, the company has picked up a point, as its revenue climbed sharply compared with last year’s contraction. The stock has jumped 45% over the past year as a reawakening in the housing market helped boost its prospects.

Fidelity National Financial Inc (NYSE:FNF) is a major player in the title insurance business. That business has struggled in recent years as the housing bust took a long time to play itself out. But now, as the housing market has finally seemed to hit bottom, buying activity has started picking up. With title insurance a required component of most mortgage-financed purchases, Fidelity National Financial Inc (NYSE:FNF) rival First American Financial Corp (NYSE:FAF) has seen a dramatic improvement in the company’s fundamentals, and both First American and Fidelity have benefited from the greater transaction-based income that healthy homebuying activity produces.

But at the beginning of the year, Fidelity National Financial Inc (NYSE:FNF) took a turn in a completely different direction, acquiring Digital Insurance. With Digital’s employee-benefits management and health-insurance distribution business serving more than 20,000 small and midsized businesses, Fidelity believes it can unify a fragmented industry. AFLAC Incorporated (NYSE:AFL) has certainly found success in serving business customers with supplemental health insurance, and by focusing on modestly sized businesses with overburdened HR departments, Digital could give Fidelity a whole new profit center for growth.

For Fidelity to keep improving, it needs to maintain its favorable valuation while making the most of the opportunity that Digital represents. If housing keeps soaring, the improvement in its core title business will just be icing on the cake for Fidelity investors.

Keep searching
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.

The article Has Fidelity National Financial Become the Perfect Stock? originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Aflac and First American Financial.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Dividend Stock Alert - Billionaire Robbins' Top Dividend Idea With 70% Upside Potential

Get Paid 3.5% Per Year While Waiting For The Stock Appreciate 70%

Larry Robbins' Glenview Capital Opportunity Fund returned 101.7% in 2013 and Robbins personally made $750 million. The same fund returned 25.3% in 2014. In this FREE REPORT we will share Robbins' top dividend idea that yields 3.5% and has been increasing its dividends for 39 consecutive years. Robbins thinks the stock has the potential to appreciate 70%.

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Click here to Read Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 74 percentage points in 2.5 years. Our beta is only 1.2 (download a FREE newsletter and see the details inside)

Lists

Best Selling Magazines in the World

Shortest People in History

The Most Celebrated Holidays in the World

Most Expensive Handbag Brands in the World

Top Selling Comic Book Issues of this Century

The Most Powerful Women in Politics

Best Paid DJs

Most Rebellious Female Artists

Best Paid TV Actresses of 2014

Best Paid Actors of 2014

Most Expensive Horses in the World

Tallest People Ever

Most Encouraging Feminist Celebrities

Best Paid Supermodels of 2014

Top 10 Suburbs for Retirement in 2015

10 Wealthiest Cities in America

Top 10 TED Talks for Entrepreneurs

Best TED Talks on Education

25 Most Dangerous Places to Live in America

Top 10 Ski Resorts in the United States – 2014 List

Top 10 Most Remote Places in the World

Most Visited Museums in the United States

Wealthiest Photographers in the World

Most Famous Gay Athletes

The World’s Most Famous Circuses

Best Hair Stylists

Most Popular NASCAR Drivers

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!