DuPont de Nemours Stock: Strong Cash Flow Poised for a Re-Rating?

We think DuPont de Nemours (DD) stock is worth a look: It is growing, producing cash, and available at a significant valuation discount. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market.

What Is Happening With DD

DD is down 51% so far this year and is now available at a significant discount to its 3-month, 1-year, and 2-year highs. This can be attributed to reduced full-year revenue guidance stemming from the reclassification of major businesses as discontinued operations, alongside persistent softness in construction markets.

The stock may not reflect it yet, but here is what’s going well for the company: Q3 organic sales grew 6%, fueled by strong demand for advanced nodes and AI technology applications in electronics and robust customer orders in healthcare and water. DuPont’s debt-to-equity ratio remains low at 0.31, with Q3 free cash flow at $576 million. The recent MOLYKOTE plant groundbreaking in China expands customer access and innovation, complementing a new $2 billion share repurchase plan.

DD Has Strong Fundamentals

• Cash Yield: DuPont de Nemours offers an impressive cash flow yield of 8.5%.
• Growing: Revenue growth of 14.0% over the last twelve months means that the cash pile is going to grow.
• Valuation Discount: DD stock is currently trading at 55% below its 3-month high, 55% below its 1-year high, and 58% below its 2-year high.

Below is a quick comparison of DD fundamentals with S&P medians.

*LTM: Last Twelve Months

But What About The Risk Involved?

While DD stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. DowDupont (DD) took some serious hits during past market shocks. It fell nearly 39% in the 2018 correction, dropped over 55% through the Covid pandemic selloff, and slid about 40% during the inflation shock. These aren’t minor blips. Even with solid fundamentals, DD’s shown it’s not immune when things get rough. Past dips serve as a reminder that risk is always there, no matter how promising the long-term outlook. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, and outlook changes. Read DD Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

If you want to see more details, read Buy or Sell DD Stock.

Other Stocks Like DD

Not ready to act on DD? You could consider these alternatives:

1. Owens-Corning (OC)
2. Abercrombie & Fitch (ANF)
3. Stride (LRN)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. Positive revenue growth
3. High free cash flow yield
4. Meaningful discount to 3M, 1Y, and 2Y highs

A portfolio that was built starting 12/31/2016 with stocks that fulfil the criteria above would have performed as follows:

• Average 6-month and 12-month forward returns of 25.7% and 57.9% respectively
• Win rate (percentage of picks returning positive) of >70% for both 6-month and 12-month periods

A Multi Asset Portfolio Gives You Safer Smarter Growth

Markets move differently but a mix of assets smooths volatility. A multi asset portfolio keeps you invested and reduces the impact of sharp drops in any single area.

The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices