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More than occasionally the market acts in peculiar ways.
For the most part, the game is simple. When a company reports earnings that beat Wall Street expectations, the stock will generally go up thereafter.
That’s not the case today with DuPont earnings.
The giant chemical company reported earnings before the market opened that were for the most part better than expectations. DuPont (NYSE: DD) made an adjusted profit of 59 cents per share in the fourth quarter of 2013 compared to an estimate of 55 cents per share.
DuPont’s revenues were $7.7 billion versus an expectation of $7.8 billion. Full-year guidance was in line with expectations.
DuPont earnings were boosted by the company’s fast-growing agricultural division. Rising seed prices and demand for crop protection is expected to continue in 2014. Already the company is reporting a strong start in advance of spring planting in North America.
In addition to the positive DuPont earnings, the company announced a new $5 billion share buy-back program.
Given the news, one would think shares of DuPont would rally, but that was not the case.
The stock traded higher in pre-market trading. After a very short-lived higher open, the stock quickly turned negative and has traded below the flat line for much of the early morning trade on Tuesday.
Considering the overall market was higher, such action is disappointing.
Instead I would view the trade as an opportunity.
The chemical space is one of the few places I can get really excited about in 2014. With global growth expected despite the early rumblings and grumblings in January, profit growth should be strong.
In addition, falling oil prices this year should translate to higher margins. With oil set to drop to $80 per barrel according to some, profits in the chemical space are likely to be higher than expected.
At the moment, DuPont is expected to grow profits by 12% in 2014. At current prices, shares trade for 14 times 2014 estimated earnings.
That’s not cheap nor is it expensive.
Interestingly, activist investor Dan Loeb has a big stake in rival chemical company, Dow Chemical (NYSE: DOW). His goal is to increase shareholder value by spinning off Dow’s petrochemical business.
That may or may not be a play for DuPont, but you can bet other hedge fund managers are sniffing around the chemical industry with DuPont being front and center.
The main point is that chemical stocks may be viewed as cheap in their current form.
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