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Rising Oil Prices Won't Slow DuPont

By Mark Whistler

Tickers in this Article: DD

On the trading floor, traders understand "baskets of stocks" well. Generally when there's a move in a sector, traders will quickly look through related stocks to see if there are any stocks that have not yet moved with the pack. The goal is to catch a delayed move by a laggard.

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One strategy that I've seen widely used is to look for chemical stocks to decline when oil is on the move. The concept is simple: Chemical stocks face higher input prices, and hence lower profits, when oil is moving up. Thus, basket traders look to short chemical stocks when oil is on the move.

However, something different is afoot in the market right now, and it's challenging the conventional wisdom of traders. Oil is just under $100 a barrel, therefore, logically, it would seem chemical company input prices are at highs, even with hedging activity in futures markets. DuPont (NYSE: DD), though, has transcended input price news. The company expects profits for 2007 to come in on the high end of expectations. What's more, the company also raised 2008 guidance from its previous range of $3.31-3.52 per share to a new range of $3.35-3.55 a share. Really, given seemingly limitless surge in oil prices, DuPont's news is nothing less than amazing.

Paradigm Shift
Housing markets are grim, there's no doubt about it. DuPont is a major supplier of flooring, so you'd think the company would have one more reason to worry about profits in 2008. But the executives are cool as cucumbers. Two words can explain this, "emerging markets". The fact is, emerging markets are growing so rapidly that DuPont stated it expects this area of business to more than compensate for a slower U.S. economy. Part of this growth will come from the company's agriculture and nutrition segments as well. (For added insight, check out What Is An Emerging Market Economy?)

What all of this means is that, despite economic woes in the United States, global markets remain healthy, especially in emerging economies where growth is blistering. What's more, a falling U.S. dollar will also help DuPont, as the company finds itself in a healthy position for increased exports. What we're really seeing here is a larger paradigm shift, where companies like DuPont are able to remain healthy, because of global conditions, regardless of a weak situation at home.

Looking Forward
The recent bullish 2007 and 2008 profit guidance by DuPont is really just icing on the cake for what value investors already know: DuPont is a very healthy company. After all, how can you argue with a forward P/E of 13.2, a PEG ratio of 1.8 and price-to-sales ratio of 1.8. All of the aforementioned are signs that things look good at DuPont. Moreover, the company pays a 3.8% dividend of $1.64, something income investors are surely happy about. (For more, see our tutorial on Investment Valuation Ratios and Use Price-To-Sales Ratios To Value Stocks.)

At the end of the day, DuPont's foresight over the past few years to diversify into emerging markets is sheltering the company from the subprime and economic storms here at home. For investors seeking a stable stock to add to their retirement accounts, DuPont could be an incredibly enticing candidate. It just goes to show, solid management willing to take calculated risks can increase shareholder wealth, no matter the economic environment.

By Mark Whistler

Mark Whistler is a trader, author and analyst. He is the senior market strategist at TradingMarkets.com and heads the Forex Trading Service Forex Force.

His books include "Trade With Passion and Purpose" (2007), "Trading Pairs" (2004), "Profit from China" (2006) and "Profit from Uranium" (2006). Mark's newest book, "The Swing Trader's Bible", co-authored with CNBC/Fox News regular guest Matt McCall, will be on shelves in the summer of 2008.

Whistler is also the founder of WallStreetRockStar.com and writes regularly for TraderDaily.com. In his spare time, Whistler operates an art gallery in Baltimore, Md., along with Eats For The Streets, a growing organization - dedicated to helping the homeless across America.

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