Has News Corp. become the perfect stock?

Every investor would love to stumble upon the perfect stock

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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 News Corp. (ASX: NWS) 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 normalised figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a cheque 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 News Corp.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 4.1% Fail
1-Year Revenue Growth > 12% 5.4% Fail
Margins Gross Margin > 35% 38.4% Pass
Net Margin > 15% 10.0% Fail
Balance Sheet Debt to Equity < 50% 53.2% Fail
Current Ratio > 1.3 2.08 Pass
Opportunities Return on Equity > 15% 13.4% Fail
Valuation Normalised P/E < 20 17.11 Pass
Dividends Current Yield > 2% 0.8% Fail
5-Year Dividend Growth > 10% 11.2% Pass
Total Score 4 out of 10

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

Since we looked at News Corp. last year, the company has picked up a point. Some relatively impressive dividend hikes helped the media giant's score, but News Corp. has some even more ambitious plans for the future.

News Corp.'s diverse mix of businesses have faced much different environments recently. With its Fox television and cable networks, News Corp. has enjoyed the same success as Disney's (NYSE: DIS) ABC and ESPN networks and Comcast and General Electric's (NYSE: GE) NBC Universal. With valuable content fetching more of a premium than ever, Fox is a juggernaut of profitability for the company.

By contrast, the publishing industry has struggled for a long time. Admittedly, the company's Wall Street Journal was much quicker to monetise its online distribution than many of its competitors. Gannett only recently joined New York Times and others in instituting pay walls for some of its content. Australia's Fairfax Media (ASX: FXJ) has also arrived late to the paywall party.

In order to get the full benefit of the more lucrative entertainment division, News Corp. announced just last month that it plans to split up the company into two pieces. The move will also help reduce the impact of the publishing division's phone-hacking scandal.

What's likely to come after the split is a publisher that may never prove to be a perfect stock and an entertainment company that will have a lot more potential to shine, going up against Disney, Time Warner (NYSE: TWX), and other production companies in the movie business as well as its TV rivals. Interested investors should stay tuned to see whether and how an eventual split actually takes shape.

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 the best investments from the rest.

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

 More reading

The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Dan Caplinger, originally appeared on fool.com

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »