For investors who may be used to flash-in-the pan, high-risk stocks, a company that’s been alive and kicking for more than two centuries may seem a little too old school to heat up the portfolio. The DuPont (NYSE:DD) chemical conglomerate may turn 209 years old this Tuesday, but old doesn’t mean stodgy or slow.
Perhaps DuPont’s strongest attribute is its penchant for innovation, evolving from an explosives company founded in 1802 by a French émigré to an American chemical and energy giant with employees in 90 countries. Today, the company’s focus on agribusiness and emerging markets is positioning DuPont well for the road ahead.
One of the hottest areas of growth is in the bioproducts sector, a niche that includes food ingredients and industrial enzymes that can be used in biofuels. To boost its position in that high-growth sector, DuPont recently spent $6.3 billion to acquire Danisco, a Danish bioproducts company. Danisco’s crown jewel is its California-based subsidiary, Genencor, which in the 1980s pioneered the concept of industrial biotechnology – with a particular focus on biofuels.
DuPont’s purchase of Danisco is both protective and opportunistic. It’s protective because it will replace some of the revenue DuPont is set to lose on expiring drug licenses. The move is opportunistic because it boosts DuPont’s agribusiness operations and makes it easier for the company to build an Iowa cellulosic ethanol plant that develops the fuel from wood, grass or other nonedible parts of plants rather than the conventional corn.
DuPont’s stock also has been on a tear of late. At Monday’s close of $53.47, the stock is trading about 50% above its 52-week low of $35.61 hit last July. When blue chips move that far that fast, the altitude usually suggests a missed opportunity, not additional upside.
But DuPont’s fundamentals are strong. The company has a market cap of $50.23 billion, and with a price-to-earnings growth (PEG) ratio of 1.38, the stock appears to be fairly valued. DuPont’s debt picture shows more debt than optimal — $12.25 billion in total debt versus $4.82 billion in total cash.
Indeed, with a total debt/asset ratio of 25.41, only two major competitors in the sector are more highly leveraged: Dow Chemical (NYSE:DOW) at 34.24 and the far smaller Scotts Miracle Grow (NYSE:SMG) at 29.19. Other key players in the sector include Monsanto (NYSE:MON) with a debt/asset of only 11.77 and the potash-producing Mosaic Co. (NYSE: MOS) at only 10.58. Still, DuPont offers an edge with a 3% dividend yield, compared to Monsanto’s 1.50% and Mosaic’s 0.30%.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.
