The Dow Chemical Company (DOW), E I Du Pont De Nemours And Co (DD): R&D Spending Strategies Compared

Companies have different ways on how they approach spending on research and development, and that difference can also explain their success or struggle in business and as CNBC’s Dominic Chu pointed out, The Dow Chemical Company (NYSE:DOW) is one of those strategic R&D spenders. He looked at Dow Chemical and E I Du Pont De Nemours And Co (NYSE:DD), which are giant players in the chemical segment with significant spending on development of next generation products.

 

The Dow Chemical Company (NYSE:DOW)

According to Chu, companies that spend more on R&D also almost without exception offer better returns to shareholders. He quoted findings of CNBC’s partner, Prof. Anne Marie Knott of Washington University in St. Louis, who looked at how sales relate with R&D spending and arrived at what is known as research quotient or RQ.

“Here is what it comes down to: research and development, R&D, many would consider the lifespan of the company in the future and its continued success. Now, spending on innovation and ideas for the next generation products is key and can often lead to better stock returns and as with everything some companies do R&D better than others,” said Chu.

Looking at a report, Chu showed that E I Du Pont De Nemours And Co (NYSE:DD) spent $2.1 billion on research last year, which was 6% of its revenue. Its RQ in the year was 98.9%.

“According to Prof. Knott’s calculations a 10% boost in E I Du Pont De Nemours And Co (NYSE:DD)’s R&D spending could lead to about $366 million boost in overall sales,” he said.

Concerning The Dow Chemical Company (NYSE:DOW), Chu said that the company spent $1.75 billion on R&D last year, which was 3% of its revenue in the year. That gave it RQ of 104.1%. He said that The Dow Chemical Company (NYSE:DOW) could realize a $741 million boost in its sales by boosting its R&D by 10%.

“About eight years ago Dow actually hired a new VP for R&D who diversified all its staff scientists and brought in new technology to speed up the pace of innovation,” said Chu, who also noted that recently activist investor Dan Loeb of Third Point also targeted The Dow Chemical Company (NYSE:DOW), which some say helped to shape some of the stock’s gains.

Disclosure: none

 

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!