For a company with just one operating division that’s generating meaningful growth, E. I. du Pont de Nemours and Company (DD) seems to have an uncanny ability to appreciate in value on the stock market.
DuPont is a big player in the agriculture sector, and this operating division is somewhat of a proxy on the sell-side industry.
Last quarter, the company reported sales growth of five percent to $7.7 billion. The company’s agricultural division experienced the best gain, with a 15% hike in sales to $1.6 billion.
If institutional investors buy the stock market based on improving balance sheets, DuPont’s fits the bill. The company’s third-quarter cash position soared from $4.3 billion to $7.0 billion.
The stock was trading around $45.00 a share at the beginning of the year, and it is currently trading at approximately $62.00 with a 2.9% dividend yield. For such a mature enterprise, an impressive capital gain like this is indicative of a monetary policy-induced stock market, where even slow-growth enterprises have been bid significantly.
Across the board, Wall Street has been increasing DuPont’s earnings estimates for this year and next. For 2013, total sales are expected to grow approximately three percent, accelerating to 6.3% in 2014.
Current earnings growth consensus for 2014 is approximately 12%, and with a three percent dividend yield, a forward price-to-earnings (P/E) of 14 isn’t unreasonable. (See “My Six Favorite Growing Dividend Payers.”)
These big, brand-name corporations can really pay, but usually only after a major correction or shock that provides a good entry point into the stock market.
Blue chips can trade sideways for considerable periods of time and then explode, just like they did after the March 2009 low. The business cycle is very real and the same exists in the stock market. There is a time to reap and a time to sow new positions. With such a strong price performance from a company like DuPont, the state of the cycle in equities is obvious.
But what DuPont does illustrate for long-term investors is that you can generate very good rates of return with blue chip stocks that pay dividends. An equity investor doesn’t have to chase the latest and greatest stocks in order to generate a decent rate of return. Everything is a cycle, and this is especially the case in capital markets.
With the stock market at an all-time high after a tremendous performance so far this year, it isn’t the most ideal time to be considering new equity investments.
Investor sentiment changes on a dime, and the stock market is very capricious. The cycle, so far, has been all about safety; with institutional investors wanting to buy the safest names with the highest predictability in earnings and dividends.
The cycle this year has shown a willingness for more aggressive betting as the performance of the NASDAQ Composite illustrates. With the prospect of a major stock market correction a useful technical development, I still think that blue chips are the best bang for the investor’s buck in an environment of continued slow economic growth.
Where to Look for Profits While Waiting for Stock Market Correction was last modified: November 19th, 2013 by Mitchell Clark, B.Comm.
Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »
Forecasts Aug. 30, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 30, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)