Is $DD a Good Buy or is a Competitor Better? $DOW $CE $EMN

DuPont de Nemours and Company (DD), aka “DuPont”, is a science and technology company. It operates seven divisions – Agriculture & Nutrition, Electronics & Communications, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals. Bloomberg reports, DD “may have licensed its technology for making televisions with organic light emitting diodes, or OLEDs, to South Korea’s Samsung Electronics Co. or LG Electronics Inc.”

RENAISSANCE TECHNOLOGIES

According to David B. Miller, president of DD’s electronics unit, “DuPont plans to license its technology to more electronics makers and also to sell proprietary OLED materials. The company is working with General Electric Co. (GE) on developing OLEDs that can be painted onto a wall or other surfaces for lighting.” So, the opportunities sound like they are there. DD is also doing well earnings-wise. It reported third quarter sales of $9.4B, up from $7.1B the same quarter last year, pushing its diluted net EPS from 40 cents a share to 48 cents. Phill Gross and Robert Atchinson’s Adage Capital Management, Jim Simons’ Renaissance Technologies and Barton Biggs’ Traxis Partners are fans. But, a few big names and a good quarter don’t indicate a good value. At best, it is a snapshot of the company’s performance. To get an idea whether DD is worth the investment, at the company in closer detail and compare its performance to its closest competitors – Dow Chemical Company (DOW), Celanese (CE) and Eastman Chemical (EMN).

P/E RATIO

First, we will look at the P/E ratio. This metric divides a company’s share price by its earnings per share – the lower the number, the better. P/E ratio indicates how many times its earnings a company is trading at. If the P/E ratio is high, the stock could be overpriced, so the lower the better. Of these four companies, EMN had the lowest P/E ratio at 9.79. CE was next at 10.89, followed by DOW at 11.48 and, lastly, DD at 13.00. These figures are on par with each other and roughly correspond to their market caps – DD is the largest at $44B market cap and has the highest P/E ratio.

EARNINGS PER SHARE

To get a better idea of the relative value of these stocks, we are also going to look at earnings per share (EPS). EMN has the highest earnings per share at $3.98, followed by CE at $3.88, then DD at $3.68. DOW was the lowest at $2.44. Given that $2.44 is the EPS for their industry, EMN, CE and DD are performing very well.

EARNINGS GROWTH

Next, let’s look at the earnings growth consistency and expectations. Expected growth estimates can be wrong. In fact, they are frequently overstated, but they can be useful when comparing companies or comparing a company’s performance relative to its industry. DD’s earnings grew 5.3% over the last five years, slightly underperforming the industry’s 6.0% growth. DD’s earnings are forecasted to grow 8.8% over the next five years, compared to 12.8% for the industry. In comparison. DOW’s earnings actually lost 12.3% over the last five years but is expected to outperform the market over the next five, at 13.5%. CE is expected to grow 13.6% over the next five years. While, EMN, grew 8.6% over the last five years and is expected to grow 10.7% over the next five.

VOLATILITY

We used beta as a measure of risk. A beta of 1.0 means that the stock moves with the market. The higher a stock’s beta, generally, the more volatile the stock, and, as a result, the more risky. A lower beta tends to indicate that the stock moves more independently from the market. DD has the lowest beta of the group, at 1.46. EMN is next at 1.90, followed by DOW (2.31) and finally CE (2.47).

HEDGE FUND OWNERSHIP

Stocks that are favored by hedge funds tend to outperform the market by a few percentage points on the average. Each of the funds we looked at has a fair amount of hedge fund ownership. DD is the most popular with hedge fund managers. Of the 300+ funds we track, 31 have positions in DD. EMN was the next popular at 25, followed closely by DOW at 24. CE was the least popular at 19.

DIVIDENDS

Dividends serve a couple purposes. Obviously, they reward investors for their investments and, to an extent, can be used to attract long term investors. Whether or not a company offers dividends can also convey something about the quality of the company’s earnings. CE had the lowest dividend yield, at 0.57%, followed by EMN at 2.67%. DD and DOW were the highest, at 3.43% and 3.57% respectively.

THE BOTTOM LINE

Overall, we like DD best. It has he highest dividend yield, the highest hedge fund ownership, competitive earnings per share and a decent P/E ratio. DD has also been the most consistent of the stocks we considered and has the lowest beta. Other stocks with a similar profile include the Toronto-Dominion Bank (TD), with a 12.42 P/E ratio, 1.27 beta, a $5.84 EPS and a 3.59% dividend yield, or Intel Corporation (INTC), with a 10.32 P/E ratio, 3.52% dividend yield, $2.31 EPS and 1.08 beta.

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