Why DuPont de Nemours (DD) Stock is a Compelling Investment Case

Rhizome Partners recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 18.3% for the second quarter (net of fees), underperforming its benchmark, the S&P 500 Index which returned 20.6% in the same quarter. You should check out Rhizome Partners’ top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Rhizome Partners highlighted a few stocks and Dupont De Nemours Inc. (NYSE:DD) is one of them. Dupont De Nemours Inc. (NYSE:DD) is a chemical company. Year-to-date, Dupont De Nemours Inc. (NYSE:DD) stock lost 11.7% and on August 21st it had a closing price of $55.14. Here is what Rhizome Partners said:

“DuPont – During Q2, Dupont’s share price increased 56% from $34.10 to $53.13. We also increased our exposure to DuPont by about 5% during the first half of 2020. With the proceeds from hedging DuPont, we decided to add to our chemicals exposure by increasing our holdings of Univar Solutions which we will discuss later in the letter. Our DuPont/Univar allocation is roughly 65/35.

DuPont reported strong results in its Nutrition and Biosciences, Electronics & Imaging, and Safety & Construction segments during calendar Q1. All segments reported EBITDA margins between 28‐29%. We believe these three segments will fare well. Nutrition and Bioscience is a consistent grower through market cycles. Electronics & Imaging is exposed to memory in servers, data centers, and smart phones. Safety & Construction contains the Tyvek protective garment business which is seeing large increases in sales due to Covid‐19. This is mitigated by lower sales in aerospace and defense markets. We expect the Transportation and Industrial segment to be challenged as it has exposure to automobile production and certain industrial applications.

The company moved quickly to improve liquidity by securing a $2.0bn delayed‐draw facility and replaced a $750mm revolving credit facility with a $1.0bn revolving credit facility. The company also delayed certain capital investments and idled production at several manufacturing sites in its Transportation and Industrial segment that has exposure to the auto, oil & gas, and select industrial markets. We believe the company has more than adequate liquidity to weather the storm. We believe that the company will still maintain EBITDA margins of over 20% during the crisis. The Reverse Morris Trust combination of the Nutrition and Bioscience segment with International Flavors and Fragrance (IFF) is still on target for early 2021. We believe the IFF transaction could serve as a catalyst for shares to trade higher.”

This isn’t the first time Rhizome Partners talked about Dupont De Nemours Inc. (NYSE:DD) favorably either. The investment firm has been a long time Dupont De Nemours Inc. (NYSE:DD) bull. In April, we shared Rhizome Partners bullish Dupont De Nemours Inc. (NYSE:DD) thesis in this article.

In Q1 2020, the number of bullish hedge fund positions on Dupont De Nemours Inc. (NYSE:DD) stock decreased by about 21% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t seem to agree with Dupont’s growth potential. Our calculations showed that Dupont De Nemours Inc. (NYSE:DD) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.