A sleeping giant has awakened.
One of the country's oldest companies has reinvented itself. Once a
stodgy old cyclical company, this Dow stock has used its deep
pockets and global brand to create a juggernaut of
growth for the next decade.
In a lackluster
, this company has tripled profits since last year and projects
average earnings growth of +20% through 2012. But it's still cheap.
The stock sells for less than 13 times next year's earnings while
also paying a solid 4%
, compared to a 2.1% yield for the S&P 500.
This company makes products for a wide range of megatrends such as
increasing worldwide demand for food, growing demand for fossil
fuel alternatives and the increasing advancement of electronics and
communications technologies. It also does substantial and growing
business in emerging markets.
But this isn't some fly-by-night company that's been getting lucky.
The stock is a blue chip Dow component that's been around for more
than 200 years.
EI DuPont de Nemours & Co. (
, or DuPont, calls itself a science and technology company, but
it's also one of the largest chemical companies in the world.
DuPont offers a wide range of products from six separate business
segments including agriculture and nutrition, electronics and
communication, safety and protection, performance chemicals,
performance materials, performance coatings.
The company primarily makes products used to make other products,
such as chemicals used in LCD screens, fertilizer to feed crops and
chemicals used to weatherize and paint cars. The company's
products are used in things we see everyday including Teflon,
Corian (for countertops and laboratories), Kevlar
(stronger-than-steel thread used in tires) and Tyvek (for house
wraps, medical packaging and labels).
The company operates in 80 countries on six contents and generated
$26 billion of revenue in 2009. Most of DuPont's sales are
generated outside the United States in the first half of 2010,
including 19% in emerging markets, which have fast growing
economies and should grow in prominence in the future.
Why is it a good investment now?
Sales were up +26% in the second quarter, compared to the year ago
quarter, to $8.6 billion. Earnings nearly tripled in the second
quarter to $1.27 per share versus $0.46 last year.
All six business segments had double-digit sales increases, with
more than +25% volume growth in three of the segments. Agriculture
and nutrition (the largest segment accounting for 32% of 2009
sales) sales jumped +16% and pretax profits were up +31% from the
year ago quarter, primarily from the North American seed business.
This is particularly impressive considering rival seed company
saw earnings drop -45% in the second quarter. The company said
several business earned revenues far in excess of pre-recession
How are they doing it?
As have most corporations in the past couple years, DuPont has
reduced costs, to the tune of about -18% in 2009. But the key to
growth has been in the company's research and development. The
company says it focuses on market-driven mega trends. In fact, out
of the $1.4 billion invested in R&D in 2009, 75% was directed
toward megatrends, including 50% toward increasing food production
and 15% for reducing dependency on fossil fuels.
This doesn't just sound good. It's working. Management says that a
surprising 30% of 2010 sales will come from products introduced in
just the last four years. Second quarter sales increased in every
major region but most of all in the fast growing emerging markets.
Year-to-date emerging market sales are up +32% from last year and
sales in emerging Asia are up a whopping +58%.
DuPont pays quarterly dividends of $0.41 (since 2007), which were
uninterrupted by the recession. The $1.64 annual divided translates
to a solid yield of about 4% at current prices -- far in excess of
In the second quarter, DuPont upped its 2010 earnings projections
from a previous $2.50-$2.70 per share to $2.90-$3.05. The company
also forecasts average earnings growth of +20% per year through
Action to Take -->
DuPont has strong, well-diversified and relatively defensive
earnings. The company is on track to continue to grow earnings
while paying a yield far in excess of the market averages. The
stock represent a good value at current prices.
-- Tom Hutchinson
Tom has a 15-year history as a financial advisor with UBS
constructing investment portfolios. Tom's background includes a
NASD Series 7 and 63 certifications... Read more...
Disclosure: Neither Tom Hutchinson nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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