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 Intel (Nasdaq: INTC) 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 Intel.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 8.8% Fail
  1-Year Revenue Growth > 12% 23.8% Pass
Margins Gross Margin > 35% 62.5% Pass
  Net Margin > 15% 24.0% Pass
Balance Sheet Debt to Equity < 50% 16.0% Pass
  Current Ratio > 1.3 2.15 Pass
Opportunities Return on Equity > 15% 27.1% Pass
Valuation Normalized P/E < 20 13.02 Pass
Dividends Current Yield > 2% 3.2% Pass
  5-Year Dividend Growth > 10% 14.4% Pass
       
  Total Score   9 out of 10

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

Since we looked at Intel last year, the semiconductor giant has kept its near-perfect score of nine. Even as some raise concerns about a declining PC market, Intel is making strides toward being a bigger presence in mobile-device chips.

Intel has been running on all cylinders for the past year. With a nice bump in its stock price, it's clear that the chip leader in PCs has been doing an effective job monetizing its dominant position in the industry, especially with emerging-market growth helping power PC sales. In its most recent quarterly report, Intel reported sales that rose 22% and earnings that beat estimates.

One reason for Intel's dominance is that it has in-house production capabilities. By contrast, Advanced Micro Devices (NYSE: AMD) spun off its GlobalFoundries manufacturing arm and has recently had low production yields on new products, raising the possibility that it might need to go to third-party producer Taiwan Semiconductor (NYSE: TSM) to get better-quality chips.

The big criticism that Intel has gotten is that it's behind in mobile devices. Certainly, rival ARM Holdings (Nasdaq: ARMH) has gotten a lot of attention with its chip architecture, which leading player NVIDIA (Nasdaq: NVDA) has used to develop its quad-core Tegra 3 processor. But Intel recently announced it would release tablets and other mobile devices using its Medfield chip this year.

The growth that a serious entry into the mobile market would create could easily give Intel its final point on the way to perfection. With a healthy and growing dividend, Intel truly stands out from the crowd, and that's why I'm making a CAPScall for the chip giant to continue outperforming the overall market in the future.

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.

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