Is Molson Coors the Perfect Stock?
Sep 7th 2011 11:05AM
Updated Sep 7th 2011 11:08AM
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 Molson Coors (NYS: TAP) 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 Molson Coors.
What We Want to See
Pass or Fail?
|Growth||5-Year Annual Revenue Growth > 15%||(10%)||Fail|
|1-Year Revenue Growth > 12%||3.6%||Fail|
|Margins||Gross Margin > 35%||43.5%||Pass|
|Net Margin > 15%||20.1%||Pass|
|Balance Sheet||Debt to Equity < 50%||24.4%||Pass|
|Current Ratio > 1.3||1.28||Fail|
|Opportunities||Return on Equity > 15%||8.7%||Fail|
|Valuation||Normalized P/E < 20||15.71||Pass|
|Dividends||Current Yield > 2%||3%||Pass|
|5-Year Dividend Growth > 10%||12.6%||Pass|
|Total Score||6 out of 10|
Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.
With six points, Molson Coors brews up a pretty good showing. The beer maker has faced both fierce competition and higher costs, but so far, the company has managed to meet those challenges head-on.
Many have talked about how the rising prices of food commodities have crimped margins at many companies. From Sara Lee (NYS: SLE) to beverage and snack giant PepsiCo (NYS: PEP) , it's harder to sustain profit growth when your costs are rising. But barley prices have jumped at an even faster pace than wheat and corn, and that's been bad news for Boston Beer (NYS: SAM) and other brewers.
Molson, however, has managed to buck that trend, keeping its net margins much wider than Boston Beer, Anheuser-Busch InBev (NYS: BUD) , or specialty brewer Craft Brewers Alliance. That has helped the company keep its policy of raising dividends regularly and sharply, which it has managed despite the complications of the Molson-Coors merger back in 2005.
The best news for Molson Coors lately was the end of the NFL lockout, which brought football back for the 2011 season. As fellow Fool Sean Williams pointed out, a host of restaurant chains like Buffalo Wild Wings (NAS: BWLD) and other beverage makers will undoubtedly benefit from the billions in business that depend on the sport for their success.
Molson needs to see better growth in order to reach perfection. But with business fundamentals solidly in place, the company has what it takes to earn some more points in the near future.
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.
Click here to add Molson Coors to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."
At the time this article was published Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Molson Coors, Boston Beer, Buffalo Wild Wings, and PepsiCo. Motley Fool newsletter services have recommended buying shares of Buffalo Wild Wings, Boston Beer, Molson Coors, and PepsiCo, as well as creating a diagonal call position on PepsiCo. 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 Fool has a disclosure policy.
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