Is Cal-Maine 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'
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 Cal-Maine (Nasdaq: CALM  ) fits the bill.
The quest for perfectionStocks 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 Cal-Maine.!

Factor

What We Want to See

Actual

Pass or Fail'

Growth
5-Year Annual Revenue Growth > 15%
14.2%
Fail
' 1-Year Revenue Growth > 12%
9.0%
Fail
Margins
Gross Margin > 35%
18.8%
Fail
' Net Margin > 15%
5.9%
Fail
Balance Sheet
Debt to Equity < 50%
20.3%
Pass
' Current Ratio > 1.3
3.28
Pass
Opportunities
Return on Equity > 15%
14.2%
Fail
Valuation
Normalized P/E < 20
14.04
Pass
Dividends
Current Yield > 2%
0.6! %
Fail
' 5-Year Dividend Growth > 10%
75.3%
Pass
' ' ' ' ' Total Score
' 4 out of 10

Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.

With four points, Cal-Maine does better than laying a goose egg, but it's definitely not perfect. The egg producer faces many of the same problems that companies throughout the food and agricultural industries are dealing with.
A big challenge that agricultural companies have had to overcome is the rising price of food. That's a positive for companies that help farmers increase production, such as fertilizer makers Terra Nitrogen (NYSE: TNH  ) and PotashCorp (NYSE: POT  ) . But it's bad news for food producers that need feed grain. In the chicken segment, Sanderson Farms (Nasdaq: SAFM  ) , Tyson Foods (NYSE: TSN  ) , and Pilgrim's Pride (NYSE: PPC  ) have fought among themselves to maintain high production levels despite sagging demand.
Similar dynamics have Cal-Maine feeling the heat of lower margins. Earlier this week, the company announced that profits fell 35% despite a big jump in sales. Without hedges of the sort that Smithfield Foods (NYSE: SFD  ) put in place, Cal-Maine had no choice but to cut its dividend. Even worse, CEO Dolph Baker expects no respite until at least t! he middl e of next year.
Cal-Maine performed well during the last recession and could be a good play for investors expecting further turbulence in the market. But until feed prices moderate, it's not going to become a perfect stock.
Keep searchingNo 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 Cal-Maine 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.

Best Wall St. Stocks Today: AMR,NWA,DAL,UAUA

In all industries staying out of Chapter 11 is a badge of honor. The sole exception to that is the airline business where bankruptcy is embedded in the culture like ticks are on the hide of a deer.
One of the few large US airlines which stayed out of a significant financial mess over the last decade is AMR (NYSE: AMR), the parent of American Airlines. In the most perverse sort of way, a Chapter 11 filing four or five years ago might have spared AMR from its current perilous state.
One advantage that Northwest (NYSE: NWA), Delta (NYSE: DAL), and United (NASDAQ: UAUA) have in the present difficult economic environment is that they used their trips through the Chapter 11 process to tear away debt as well as employees which they deemed to be redundant. By several accounts, NWA has saved over $2 billion a year because it went through bankruptcy.
All of the large US airlines are at great financial risk now. Ditto for many of their overseas brethren like Alitalia. Fuel costs are up sharply and passenger revenue and revenue miles are likely to fall as the economy keeps people off commercial carriers The very rich can continue to operate their own fleets of private jets.
The present financial trouble does not strike each large US airline equally. Largely because of an advantage of Chapter 11, NWA has $6 billion in debt to its $3 billion in cash. At AMR, long-term debt totals $15.6 billion compared to its $4.6 billion in cash. Last year, AMR’s EBITDA was only about two times it interest expenses. By paying all of its bills, AMR has been placed at a great disadvantage.
AMR had very modest operating income of $965 million last year compared to its $22.9 billion in revenue. The market has figured out the problem. While shares in other national carriers are off about 50% in the last six months, AMR is off 60%. That is a significant negative premium, a vote saying AMR is in a different bucket than its competitors are.
Aloha Air, ATA, ! and SkyB us all went out of business in the last two weeks. Several carriers reported falling traffic for March. At AMR, domestic traffic fell 5.9% for the month.
At some point soon, the dropping revenue effect and rising expenses cross where interest payments matter.
That will be soon at AMR and it puts the company at great peril.
Douglas A. McIntyre