DuPont Falls, But It's Not Time to Sell

DuPont's profit warning has hit the stock today, but that shouldn't scare away investors.

Jun 27, 2014 at 3:30PM

Stock indexes are mixed today, and the Dow Jones Industrial Average (DJINDICES:^DJI) has fallen 0.1% in large part because of a big drop from DuPont (NYSE:DD). I'll get to that in a minute, but first there is notable progress in consumer confidence, which could keep markets pushing higher this year.

The University of Michigan and Thomson Reuters said today their consumer confidence reading hit 82.5 in June; May's final reading was 81.9. That means confidence is nearly back to where it was before the recession and consumers are likely to tick up spending in the second half of the year.  

Why DuPont lagged the Dow
Confidence may be up, but DuPont's stock is down nearly 4% in late trading after the company issued a profit warning. Management said that poor performance in the company's agriculture business will result in a slight decline in second-quarter earnings from $1.28 per share a year ago.  

For the full year, management lowered its operating earnings outlook to a range of $4 to $4.10 per share from $4.20 to $4.45.

While profit warnings are never good for a stock, I think there are reasonable explanations for the performance from DuPont. The company has seen lower than expected demand for corn products as farmers shift to soybeans this year. Pesticides typically used early in the planting season were also hurt by the bad weather that plagued the country earlier this year. That resulted in not only weaker than expected demand, but also higher seed inventory writedowns.  

This is one time where it's important to keep the long-term perspective in mind, particularly for a company like DuPont. You can see below that revenue has slowly climbed over the past decade, and earnings and dividends have both increased as well.

DD Revenue (TTM) Chart

DD Revenue (TTM) data by YCharts.

Long term, DuPont is still a strong chemical and agriculture company; this profit warning does nothing to change that picture. Demand for agriculture products can be volatile year to year, so investors should expect ups and downs in the stock. But the company is still highly profitable and has now paid a dividend for 439 consecutive quarters.

The lower price actually makes for an attractive buying point for investors looking for a great dividend. The yield is up to 2.6%, and if the corn market improves next year profits should be on track to grow again. But a long-term lens is needed and that's tough to do in a market focused on very short-term news.

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Travis Hoium manages an account that owns shares of E.I. du Pont de Nemours & Company. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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