Is AOL 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 and then decide whether AOL (NYSE: AOL  ) 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 AOL.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% (24.1%) Fail
  1-Year Revenue Growth > 12% (20.8%) Fail
Margins Gross Margin > 35% 33.4% Fail
  Net Margin > 15% 10.2% Fail
Balance Sheet Debt to Equity < 50% 5.2% Pass
  Current Ratio > 1.3 1.86 Pass
Opportunities Return on Equity > 15% 10.6% Fail
Valuation Normalized P/E < 20 10.38 Pass
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
       
  Total Score   3 out of 10

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

With a score of only 3, AOL isn't connecting well with perfection. The one-time online innovator has struggled to remain relevant in a much different world from its roots roughly 20 years ago.

Young investors may not remember when AOL was one of the only ways to gain access to the Internet, but the company was at the forefront of the online revolution. After huge successes in the 1990s, the company faded into relative obscurity as its business model went out of date.

Specifically, AOL's premium dial-up access became irrelevant as broadband access from telecoms like Verizon (NYSE: VZ  ) and cable companies like Comcast (Nasdaq: CMCSA  ) became affordable. Although peers United Online (Nasdaq: UNTD  ) and Earthlink (Nasdaq: ELNK  ) still provide similar service, AOL has seen its number of premium accounts fall by more than 85% to just 3.4 million households.

Now, the key to AOL's future success appears to lie in global advertising. The company's move to acquire Huffington Post and TechCrunch has helped it see its first gain in ad revenue in three years. Content production is far from a noncompetitive business, with everyone from the big search portals to Demand Media (NYSE: DMD  ) using a similar business model.

The big question is whether AOL can use its brand recognition to stand out from the crowd of content providers. If so, then AOL could finally move back toward its perfection of the 1990s.

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.

Add AOL 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.

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Source: http://www.fool.com/investing/general/2011/08/10/is-aol-the-perfect-stock.aspx

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Buy Apple, Sell ExxonMobil

Apple stockEven buy-and-hold investors can't afford to let their portfolios collect cobwebs. Valuations and fundamentals change perpetually, and shareholders need to know what they're holding -- and if there's more potential for growth elsewhere. Here we take a look at some stocks worth swapping.

Apple (AAPL) finally did it. By the close of trading Wednesday, Apple's market capitalization surpassed that of ExxonMobil (XOM), making the iPad and iPhone maker the country's most valuable company. The gas giant floored it toward the end of the trading day to retain its pole position, but every trading day brings a new checkered flag to keep this race interesting.

We should be fair here. Apple and ExxonMobil may now command close to $350 billion in market cap apiece, but there's a wide gap when it comes to enterprise value:

  • Apple's cash-rich balance sheet gives it an enterprise value -- essentially a company's market cap plus debt minus cash -- closer to $300 billion.
  • ExxonMobil's enterprise value is actually somewhat larger than its market cap.

In other words, the two companies are really closer to $40 billion apart than the neck-and-neck photo finish that the market caps suggest.

Big Tech Trumping Big Oil

However, it's easy to recommend big tech over bigger oil. Apple is growing quickly. Net sales soared 82% in its latest quarter, with earnings more than doubling. The future should be just as bright given the growing popularity of Apple's iPads, iPhones, and even its Macs. Some analysts see Apple rolling out actual smart televisions in the next year or two, so the class of Cupertino is really just starting to scratch the surface in consumer electronics.

ExxonMobil wasn't exactly a slouch. Total revenue and net earnings climbed 36% and 42%, respectively, during the same quarter. ExxonMobil also pays out a generous dividend yield of 2.7%, while Apple's Steve Jobs keeps his company's tens of billions in the vault.

However, it's hard to get too excited about a company that is essentially at the whims of gasoline prices.


Demand for fuel may grow globally in the coming years, but the trend domestically for ExxonMobil tells an entirely different story. Earlier this summer, the 13 largest automakers agreed to continue to make more fuel-efficient cars, targeting an average of 54.5 miles per gallon by 2025.

In other words, while your children -- or grandchildren -- will be lining up to buy the iPhone 19, your car will be sipping roughly half as much gasoline as it is right now.

It's All About Growth Potential

Cynics will argue that Apple won't be cool forever, and even the iPod that put the company back on the map when it was introduced a decade ago is starting to wane in popularity. However, the real driver here is iOS, Apple's mobile operating system that now powers 200 million iPads, iPhones, and iPod touch devices. The platform has created digital and cloud-based opportunities that never existed before.

While ExxonMobil is trying to squeeze more juice out of dinosaurs like all of its peers, Apple is a company that's creating its own luck.

I'll stick with Apple.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns
shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple.

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Source: http://www.dailyfinance.com/2011/08/10/buy-apple-sell-exxonmobil/

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What Windows 8 Means To Microsoft Stock

The company scored big with Windows 7 following the Vista debacle, and it now looks like Windows 8 could be the next catalyst to boost some life in the stock. We have a $28 Trefis price estimate for Microsoft.

Source: http://www.forbes.com/sites/greatspeculations/2011/08/10/what-windows-8-means-to-microsoft-stock/

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Credit scores Repair Solutions and How they can Help Anyone

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Source: http://www.legaldebthelponline.com/2011/08/09/credit-scores-repair-solutions-and-how-they-can-help-anyone/

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