Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

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Is DuPont Making Money from Chemicals?

DuPont de Nemours Inc. (NYSE: DD) is one of America’s oldest and most historic companies.

They founded DuPont’s predecessor DuPont in 1802. The original E. I. du Pont de Nemours and Company started as a gunpowder maker. During the 20th Century, DuPont invented such famous materials and chemicals as Freon, Nylon, Teflon, Nomex, Kevlar, and Neoprene.

However, today’s DuPont results from a 2017 merger between DuPont, Dow, and Corteva, and subsequent spinoffs. Strangely, DuPont spun Dow and Corteva off again recently.

Is DuPont making Money?

Today’s DuPont is making money, but it has serious problems. Incredibly, Stockrow estimates DuPont’s revenues shrank by 90.71% in the quarter ending on 31 December 2019.

In contrast, DuPont reported a quarterly gross profit of $1.786 billion on New Year’s Eve 2019. That gross profit was down from $1.895 billion on 30 September 2019.

Additionally, DuPont reported an operating income of $412 million and a common net income of $176 million on 31 December 2019. Thus, DuPont is making money despite its revenue shrinkage.

No operating cash flow for the last quarter was available. However, DuPont reported an operating cash flow of $882 million and an ending cash flow of $456 million on 30 September.

Consequently, DuPoint had $1.54 billion in cash and short-term investments on 31 December 2019. That number was down from $2.113 billion on 30 September 2019.

Is DuPont a Value Investment?

Given these numbers, I think DuPont is a value investment. DuPont is a value stock because it is cheap and generates cash. Mr. Market paid $53.81 for DuPont shares on 6 February 2020.

Thus, DuPont is cheap and it the cash gives it a margin of safety. Furthermore, DuPont (NYSE: DD) pays a dividend.

DuPont paid a 30₵ quarterly dividend on 27 November 2019. In addition, DuPont paid a big dividend of $1.141 on 27 July 2019.

Overall, gives DuPont de Nemours Inc. a dividend yield of 2.22%, an annualized payout of $1.20, and a payout ratio of 30.5% on 6 February 2020. Under those circumstances, I think DuPont is a good dividend stock.

Is Basic Industry a Value Investment?

Basic industry stocks such as DuPont raise an interesting question. That question is basic industry a value investment in today’s high-tech world.

After all, DuPont makes far less money than tech titans such as Alphabet (NASDAQ: GOOG). Alphabet (NASDAQ: GOOGL) reported an incredible $121.177 billion in cash and short-term investments on 30 September 2019.

Alphabet and DuPont are similar because they provide the raw materials for an economy. DuPont provided the raw materials for the 20th Century economy; namely chemicals and plastics. Alphabet provides the raw material for today’s economy: data.

Data is More Valuable than Chemicals

Alphabet’s cash shows data is far more lucrative than chemicals. One reason Alphabet makes more money is that its infrastructure is far cheaper. DuPont needs to buy raw materials to make chemicals or plastic and ship them to customers.

Alphabet pays nothing to make data and gets much of its infrastructure; the Internet, for free. Alphabet owns a vast amount of infrastructure in the form of data centers. However, Alphabet harvests most of its data from websites, content, and data centers, others build.

Google gathers data from websites and ads for instance. Meanwhile, YouTube harvests data from videos others create and post at no cost to Alphabet.

Is Big Data a Value Investment?

Therefore, perhaps data harvesters such as Alphabet, Microsoft (NASDAQ: MSFT), Facebook (NASDAQ: FB), and Amazon (NASDAQ: AMZN) are today’s real value investments.

To clarify, these companies profit from Big Data. For instance, Amazon Web Services generated $9.95 billion from web hosting in 4th Quarter 2019, CNBC reports. Meanwhile, Facebook harvests data from social media and Microsoft harvests data from utilities such as GitHub.

For instance, Amazon had $43.401 billion cash and short-term investments on 30 September 2019. Plus, Facebook had $58.885 billion in cash and short-term investments on 31 December 2019. Finally, Microsoft had $134.253 billion in cash and short-term investments on New Year’s Eve 2019.

I think Big Data is a value investment because it is cash rich. That gives Big Data a huge margin of safety that traditional industry lacks. Under these circumstances, I wonder if traditional industry can survive because it lacks cash.

Can Industry Survive?

A related problem is that investors could dump industrial stocks because they are less safe than Big Data. Hence, industry could have a hard time attracting investors which creates problems for government.

Industry creates; more jobs, than Big Data. In the long run, I think this situation could force America’s government to follow China’s example. In China, the government finances industrial development.

To explain, industry’s lack of cash could force the federal government to loan industry money. Additionally, the economy could force Uncle Sam to make direct cash investments in industry.

I think both policies will be unpopular; and possibly politically impossible, in the United States. A more radical idea is to tax Big Data to finance industrial development. That idea could be popular with working-class voters but anathema to libertarians.

In the final analysis, I predict the decline of traditional industrial companies such as DuPont (NYSE: DD) and the rise of Big Data will lead to a political crisis. Conversely, I consider DuPont a value investment because it is cheap, pays a good dividend, and generates cash.