1 Brilliant Company On Sale?

Warren Buffett described major selloffs in the market as times when it rains gold because the opportunity to make enormous sums of money is everywhere. He further goes on to say that unfortunately those times only come alone maybe once per decade so when they do you need to be ready to pounce in a big way.

But interspersed between those major selloffs are big plunges in individual stocks and one blue chip that regularly reports around $1.5 billion or more in EBIT fell from its perch and kept tumbling this week. The stock in question is DuPont, and in a single day it crashed from near its 2023 highs to its 2022 lows. Now the question is whether it’s raining gold and time to buy?

Key Points

• DuPont share price plunged following management’s announcement that demand in China is softening.
• After the selloff, the stock remains undervalued relative to analysts’ consensus forecasts.
• Technically, the share price is oversold and may be due a bounce soon.

DuPont’s Selling Points

If you know the name DuPont but don’t know what it does, it’s quite understandable because it does a lot across a variety of sectors. Unlike Apple, for example, where you can point to a handful of devices and say it makes the iPhone, DuPont’s products include supplying materials for the fabrication of semiconductors and engineered products for worker safety and water purification. Further, the Corporate segment features adhesives and fluids. The products are so varied that it’s a little hard to point to one flagship offering and say it does “that” but if you had to pick one it would be innovating in the field of materials science.

Without getting into the nitty gritty of each division what we can observe across the spectrum of industries served is that DuPont actually has broad diversification by selling to industries ranging from semiconductors to healthcare.

So, while its share price tumbled on concerns of softening demand, the business model has a built-in resilience to economic downturns. And that in turn has led to consistent profitability with earnings per share over the past ten quarters, all of which have been positive and hovering around the $2 per share range.

With such stable earnings you might expect the stock to be more popular but it plunged this week, so is now a buy?

Time to Buy?

In spite of management reporting softening demand recently, they were clearly willing to back their own share price recently when a multi-billion dollar share buyback scheme was announced. That was before the share price tumbled.

Add to the that the 2.24% dividend yield that has been paid consecutively for 53 years and passive income investors are unlikely to flee the stock anytime soon. By contrast, it’s starting to look even better from a quarterly payout perspective.

Even the price-to-earnings ratio which is high presently has the hallmarks of being low relative to future earnings according to analysts. Speaking of which they rate the stock, in aggregate, as undervalued at this time with a price target of $77 per share.

Viewing the share price through a technical lens it’s also looking attractive with the RSI in oversold territory. While there are concerns short-term about the bearish momentum continuing, any slowdown in the bearish trend could be met by a bounce back medium term as value buyers step in to take advantage of the fundamental mismatch to fair value.