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 Newmont Mining Corp (NYSE:NEM) 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 Newmont Mining Corp (NYSE:NEM).
| Factor | What We Want to See | Actual | Pass or Fail? |
|---|---|---|---|
| Growth | 5-year annual revenue growth > 15% | 12.5% | Fail |
| 1-year revenue growth > 12% | (4.7%) | Fail | |
| Margins | Gross margin > 35% | 56.4% | Pass |
| Net margin > 15% | 18.3% | Pass | |
| Balance sheet | Debt to equity < 50% | 37.2% | Pass |
| Current ratio > 1.3 | 1.89 | Pass | |
| Opportunities | Return on equity > 15% | 13.4% | Fail |
| Valuation | Normalized P/E < 20 | 12.37 | Pass |
| Dividends | Current yield > 2% | 4.1% | Pass |
| 5-year dividend growth > 10% | 28.5% | Pass | |
| Total score | 7 out of 10 |
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Newmont Mining last year, the company hasn’t been able to regain the point it lost from 2011 to 2012. The stock has gotten hammered, dropping 20% over the past year.
Newmont has had to deal with two major forces working against it lately. Gold prices have been fairly weak, with the SPDR Gold Trust (ETF) (NYSEMKT:GLD) having lost 5% of its value in the past 12 months as it has closely tracked the falling price of gold bullion. Even worse, rising production costs have led to considerable concern among investors about Newmont Mining Corp (NYSE:NEM)’s ability to keep its profit margins up.
