Can DuPont Soar Higher?

With shares of E I Du Pont De Nemours (DuPont) (NYSE:DD) trading around $55, 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. As science and technology see progress, look for DuPont to follow the trends and see rising profits.

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T = Technicals on the Stock Chart are Mixed

DuPont stock has been a part of a multi-year range that extends back to the early 2000s. The stock is now trading at the top of this range, where the next move it makes will be very critical. 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

20.49%

46%

44%

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

Put IV Skew

Call IV Skew

June Options

Flat

Average

July 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 significant 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 Mixed 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

-3.11%

-70.42%

-10.42%

-3.10%

Revenue Growth (Y-O-Y)

2.03%

-1.42%

-11.65%

7.53%

Earnings Reaction

4.12%

1.08%

-9.06%

-1.99%

DuPont has seen decreasing earnings and mixed revenue figures over the last four quarters. From these figures, the markets have been pleased with DuPont’s recent earnings announcements.

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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

22.90%

8.14%

10.87%

-2.28%

8.31%

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

Conclusion

DuPont provides innovative products to companies operating in a wide range of industries worldwide. The stock has been part of a multi-year range and is now at the top end so any move from here is critical. Over the last four quarters, earnings have decreased while revenues have been mixed, which has generally pleased investors. 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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