The chemical industry provides the raw materials without which the modern world would grind to a halt. As such, this sector is cyclical and moves in synch with the ups and downs of the overall economy.
Right now, chemical companies are leveraging global growth and cheaper costs to enjoy a banner year — and that especially applies to E I Du Pont De Nemours and Co (DD), a blue chip company commonly referred to as DuPont.
Delaware-based DuPont is the granddaddy of chemical stocks, among the oldest and largest names in the industry; DuPont has been a well-respected brand since it was founded in 1802. It is larger than Dow Chemical Co. (DOW) and only slightly behind giant 3M Co. (MMM) in regards to market capitalization.
But forget about history — DD stock is also a heck of a good company right now, and here’s why.
DuPont Stock Riding High on Autos, Agriculture & Nat Gas
DuPont stock coped with the Great Recession by cutting costs. But today’s economic recovery, especially in the chemical-intensive automotive and construction industries, is generating greater demand — and thanks to previous cost cutting, profit margins are higher as well for DuPoint stock.
DuPont enjoys an even greater cost advantage than its competitors in other countries because of thriving production of natural gas liquids in North American shale formations. The fracking boom has generated an oversupply with inputs such as ethane, which is a byproduct of petroleum refining, flooding into the market faster than chemical makers can use them.
This dynamic has made DuPont stock a low-cost leader in an industry that’s now on an upswing.
E I Du Pont De Nemours and Co also has an Agriculture segment provides several seed products under the Pioneer brand, as well as herbicides, fungicides and insecticides. The Performance Chemicals segment provides industrial and specialty chemicals, including plastics, coatings, textiles, and polymers for the oil and gas, electric utilities, automotive and defense industries.
That’s not all, either. DD stock also manufactures a range of chemicals that are used as coatings for industrial products and raw materials in the electronics and defense industries, which also are enjoying resurgence.
A major customer for DuPont’s chemicals is the thriving automotive sector. Carmakers value the company’s titanium dioxide, which is used to give paint and other coatings a white shine. Automobile buyers, especially in North America, are feeling wealthier as they draw down debt and the values of their homes increase. This “wealth effect” is pushing more people into car showrooms, which in turn puts chemical maker DuPont into the driver’s seat.
DD Stock by the Numbers
So what do all these disparate businesses mean for DuPont stock investors?
Well, in its second quarter of 2014, DuPont reported an increase in earnings, but its adjusted earnings per share (EPS) fell year over year on the sluggish performance of its agriculture business. The company posted adjusted EPS of $1.17, compared to $1.28 in the same period a year ago. Revenue was $9.7 billion versus $9.8 billion in the same year-ago period.
Nonetheless, the slump in agricultural demand should soon end as the middle class in emerging markets continues to show an appetite for grain-intensive, Western style diets. For 2014, management projects robust EPS of $4.20 to $4.45, for a year-over-year increase of 8 percent to 15 percent.
For investors in search of a growth stock with limited risk, DuPont exhibits plenty of chemical attraction.
And let’s not forget that DD stock pays a nice 2.7% dividend, and that its distributions have been coming every year all the way back to 1904.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
