Has News Corp. become the perfect stock?

Every investor would love to stumble upon the perfect stock

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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 Fools 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

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