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DuPont Leads a Falling Dow

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) has been trading lower most of the day today, partly because the market now expects the Federal Reserve to raise interest rates sooner than it formerly expected because the economy is doing so well. With minutes left in trading it's down 0.08%. 

This dance of good economic news and stocks falling has been playing out for months, and long-term investors need to look past the short-term reaction to the long-term ramifications for companies. Lower unemployment and higher GDP will lead to more spending and higher profit potential for the companies we own stocks in. That may mean higher interest rates, but long term I'd rather see higher rates and higher profits than companies reporting flat earnings, like they did last year.

Leading a falling Dow
A surprising leader today is chemical and agriculture product maker DuPont (NYSE: DD  ) , which is up 0.9%. Analysts at Bank of America/Merrill Lynch upgraded  the stock to a buy rating and added a $70 price target. That's not huge upside from the share price of around $63.70 today, but it was apparently enough for a higher rating.

You can see below that DuPont has seen revenue fall over the past two years and net income is only up slightly, but one byproduct of that is a sharp decline in the stock's P/E ratio.

DD Revenue (TTM) Chart

DD Revenue (TTM) data by YCharts

The current P/E ratio of 12.4 and dividend yield of 2.9% are among the best values on the Dow Jones Industrial Average, and it won't take a lot for growth to pick up. Agriculture is the company's largest segment and its 15% growth rate last quarter, which bodes well for the future. DuPont is building a line of seed and other products that augment each other and create stickiness to the business.

Chemicals like titanium dioxide also had unusually weak performance last year, something that should improve as the economy picks up steam.

DuPont is priced so low and has such upside that it's quietly a great way to play the economic recovery. Every segment of its business will benefit from global growth, and investors are just starting to see some of that value today.

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Read/Post Comments (3) | Recommend This Article (1)

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  • Report this Comment On January 09, 2014, at 7:56 PM, funfundvierzig wrote:

    The Merrill Lynch unit of Bank of America Corp has upgraded DuPont from NEUTRAL to BUY, and slapped on a target price of 70. This historically shady brokerage house cited "portfolio improvements", apparently the strategy of DuPont Chieftess, Ellen Kullman to ditch 200 years of core competency in chemistry, dumping TIO2, Teflon, refrigerants, acids, and other chemicals. To that end, Ms. Kullman is tossing out the window, nearly a third of her earnings and 20% of her yearly revenues based upon full year 2012 data. Apparently, Ms. Kullman with a misfiring musical sense, wants to play second fiddle full-time to Monsanto and Syngenta.

    We are more than mildly curious, did Merrill Lynch adequately disclose:

    * Erstwhile DuPont Chairman & CEO, Chad O. Holliday, Jr., is the head honcho of Bank of America Corp, serving as Chairman of the Board of Directors?

    * Merrill Lynch for years has enjoyed a lucrative contract with DuPont administering DuPont's Retirement Savings Plan, or 401k?

    Trust this DD upgrade? Not the undersigned private investor, long MON, short DD...funfun..

  • Report this Comment On January 09, 2014, at 8:04 PM, funfundvierzig wrote:

    "DuPont is priced so low and has such upside that it's quietly a great way to play the economic recovery."

    We respectfully demur. DuPont is over-priced given its dramatic shrinkage, same entrenched, inbred Management, and poor prospects as a second-rate player to Monsanto, in seeds, to Syngenta and Bayer, in crop protection, to Novozmes in food additives and enzymes, and finally to Scotts MIRACLE-GRO in retail garden and lawn products.

    Other than a pesticide with a customer-hostile name, RYNAXYPYR, which defies pronunciation, spelling and memory, what innovative, high-profit blockbuster has come out of the once famed laboratories of DuPont in the past seven years?


  • Report this Comment On April 21, 2014, at 6:27 PM, Hansen wrote:

    Operating profits for DuPont safety and protection segment increased 27% year over year to $175

    million. Improved productivity and strong sales mix has helped improve the segment’s margins.

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Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

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9/4/2015 4:30 PM
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E.I. du Pont de Ne… CAPS Rating: ****