Will DuPont Breakout?

With shares of E I Du Pont De Nemours (DuPont) (NYSE:DD) trading around $57, is DD an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

DuPont operates as a science and technology-based company around the world. The company is involved in seed production, selling activities, and distribution of products manufactured. Its segments are Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals. DuPont provides valuable and innovative products to consumers and companies worldwide that allow for smoother business.

On Tuesday morning, DuPont, the chemicals giant, reported a decline in earnings partly because of lower pricing for some of its key products. The company also said that it is exploring a possible sale or spinoff of its performance chemicals unit. As science and technology see progress, look for DuPont to follow the trends and see rising profits.

T = Technicals on the Stock Chart are Strong

DuPont stock has been part of a stable range for most of the last decade. The stock is now attempting to break above this range but it may need a good catalyst to do so. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, DuPont is trading above its rising key averages which signal neutral to bullish price action in the near-term.

DD

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of DuPont options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

DuPont Options

20.92%

0%

0%

What does this mean? This means that investors or traders are buying a very minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on DuPont’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for DuPont look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-12.00%

-3.11%

-70.42%

-10.42%

Revenue Growth (Y-O-Y)

-1.00%

2.03%

-1.42%

-11.65%

Earnings Reaction

-0.09%*

4.12%

1.08%

-9.06%

DuPont has seen decreasing earnings and mostly decreasing revenue figures over the last four quarters. From these numbers, the markets had mixed feelings about DuPont’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has DuPont stock done relative to its peers, Dow Chemical (NYSE:DOW), Monsanto (NYSE:MON), Syngenta (NYSE:SYT), and sector?

DuPont

Dow Chemical

Monsanto

Syngenta

Sector

Year-to-Date Return

27.91%

7.24%

9.73%

2.20%

8.92%

DuPont has been a relative performance leader, year-to-date.

Conclusion

DuPont provides innovative chemical solutions to companies to companies that operate in a multitude of industries worldwide. The stock has been fairly stagnant for most of the last few years and is now trading near the top of its range. Over the last four quarters, investors in the company have had mixed feelings as earnings and revenue figures have been mostly decreasing. Relative to its peers and sector, DuPont has been a year-to-date performance leader. WAIT AND SEE what DuPont does this coming quarter.

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