An old favorite is going back in the Bullpen, our watch list of stocks we’re considering buying for the Club’s portfolio. In addition to improving business trends and a cheap valuation, the thinking is that this particular stock could benefit further from the broadening market rally, which has seen the Dow Jones Industrial Average really come to life recently, logging its first 10-session winning streak since August 2017. (Coming soon, we’ll have another bullpen name that’s tech-focused and benefits from AI chip development.) The stock we’re adding first is DuPont (DD). We’ve profitably traded this specialty chemical maker for the Investing Club through the years — most recently selling it in the low $80s back in January 2022 after a valuation boost on the prospects of two pending deals. Only one was eventually completed. When we last owned DuPont, the company was waiting to close on its acquisition of Rogers Corporation , another specialty materials company with great exposure to electric vehicles. In conjunction with the transaction, DuPont was in the process of selling its Mobility & Material (M & M) business to Celanese for $11 billion in cash. As it turned out, DuPont couldn’t get the necessary regulatory approval from China for the Rogers deal and terminated the merger. However, the deal with Celanese did go through, leaving DuPont with a war chest of cash on its balance sheet. Immediately after the Rogers transaction was scuttled, DuPont announced a huge stock buyback, saying it would put $5 billion, which had been earmarked for the acquisition, towards share repurchases instead. At the same time, it also repurchased $2.5 billion in debt. So what does the (slightly) new DuPont look like now? About 35% of DuPont’s revenue comes from electronics, with strong ties to semiconductors and smartphones. Both of these are nearing the bottom, or trough, of their cycles with the recovery expected to begin in the third quarter as silicon and smartphone shipments increase. Another 15% of its business is tied to construction, and that’s been much more resilient than what many have predicted this year. With U.S. housing starts troughing and the Federal Reserve nearing the end of its interest rate hiking cycle, we could see activity in the residential market pick up later this year. The other 50% of the portfolio is pretty diversified with exposure to less-cyclical areas like water, health care, protection and defense, as well as autos. DD YTD mountain DuPont YTD performance The best part yet is that the stock is still relatively cheap at 20 times earnings in a market that’s had a big run. This view is backed by JPMorgan’s Electrical Equipment & Multi-Industry analyst Steve Tusa, who is one of our favorites for his rigor. On Wednesday, he raised his DD price target to $85 per share from $75 and added the stock to his Analyst Focus list. Based on Tusa’s sum-of-the-parts (SOTP) analysis — which is a way to value a company by applying an industry multiple to different business segments — DuPont should be valued somewhere in the $90 range. Sometimes one has to take a SOTP analysis with a grain of salt because breakups are required for that value to be realized, but DuPont is a special situation where it matters. CEO Ed Breen is a legendary dealmaker who is always looking for ways to unlock value for shareholders. He did this by selling M & M at an attractive multiple, and we wouldn’t put it past him to seek out value-creating actions again if he felt the stock seriously disconnect from the company. Either way, we think DuPont presents itself as an industrial way to play the recovery in the semiconductor industry without paying a typical semiconductor multiple. (Jim Cramer’s Charitable Trust is long DD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Commuters exit a Wall Street subway station near the New York Stock Exchange in New York.
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An old favorite is going back in the Bullpen, our watch list of stocks we’re considering buying for the Club’s portfolio. In addition to improving business trends and a cheap valuation, the thinking is that this particular stock could benefit further from the broadening market rally, which has seen the Dow Jones Industrial Average really come to life recently, logging its first 10-session winning streak since August 2017. (Coming soon, we’ll have another bullpen name that’s tech-focused and benefits from AI chip development.)
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