A funny thing happened on the way to the end of the first quarter on Friday, March 30.

After leading the stock market for most of the quarter, cyclical stocks started to lag the Standard & Poor’s 500 Stock Index.

Is this a sign of what we can expect in the second quarter as worries about economic growth take the steam out of profits linked to the economic cycle? I’d say, Yes. I think we’re seeing the first signs that the pendulum, which swung to optimism and drove this rally, is swinging in the other direction.

Let’s start with some numbers. Read more

Not so long ago—in my long, long February 21 post http://jubakpicks.com/2012/02/21/its-been-a-stunning-rally-but-where-do-we-go-from-here-my-thoughts-on-fine-tuning-a-strategy-for-2012/ –I said that for the first half of 2012 earnings growth would come under pressure as companies found demand strong enough to push up the cost of raw materials but not so strong that they would be able to pass all those increases through to customers. Keep an eye out for companies facing that problem, I advised, and when you find one in your portfolio sell it.

Which is why I’m selling DuPont (DD) out of my 12-18 month Jubak’s Picks portfolio today. (I still like the longer-term picture for DuPont so I’m keeping it in my Jubak Picks 50 portfolio—especially since the rules of that portfolio only allow selling once a year in January.)

There are lots and lots of reasons to like DuPont for the long term—its seed business and its enzyme business to name just two sources of long-term growth. And with natural gas, a major feedstock for many chemicals, stuck in a very long-lasting slump, DuPont doesn’t face rising raw materials costs for many of its products.

Except for titanium dioxide. And that’s a huge problem. Read more

Update DuPont (DD)

DuPont’s fourth quarter earnings results, announced on January 24, shouldn’t have come as any surprise. (The stock is a member of my Jubak’s Picks 12-18 month portfolio http://jubakam.com/portfolios/ )

Back on the chemical company’s investment day in mid-December, DuPont had said that it saw the next few quarters as tough but that it saw a bright longer-term future thanks to its “new” businesses of nutrition and industrial bioscience. And that’s the story that fourth quarter earnings told too.

Fourth quarter earnings came in a 35 cents a share (excluding one-time items), beating Wall Street estimates by two cents a share. Revenue grew by 14% from the fourth quarter of 2010—if you count a big boost from acquisitions and currency. Excluding those two factors revenue grew by just 4%. At $8.43 billion for the quarter, revenue came in just below the Wall Street estimate of $8.53 billion.

As you might expect in the current global economy, DuPont’s sales in its consumer electronics and construction businesses were weak in the quarter. Electronics sales, for example, were down 18% year-to-year.

But the company’s newer and non-traditional (for DuPont anyway) businesses continued to do well. Read more

Update DuPont (DD)

You’re entitled to feel whiplashed by DuPont (DD) over the last week or so.

First, on December 9, DuPont announced that fourth quarter earnings would come in at 28 cents to 36 cents a share, well below the Wall Street consensus of 46 cents a share. The problem, the company said, is that customers are cutting back on orders on fears of a global economic slowdown, preferring to draw down inventories rather than risk getting caught with raw materials they don’t need. The problem has been spread across DuPont’s businesses in plastics, autos, general packaging, home building, and electronics. Europe, no surprise, is the weakest region.

Second, on December 13 at the company’s investor day, DuPont said, in effect, that Wall Street had overreacted by cutting projections for full-year 2011 earnings to $4.23 after the negative pre-announcement. For 2011 the company projected earnings of $4.20 to $4.40 a share. Cost cutting and synergies from the acquisition of Danisco–$300 million and $130 million, respectively—are materializing sooner than expected. Although the businesses the company mentioned in the December 9 preannouncement are indeed slowing, growth is more than holding up at the fast-growth industrial biosciences and nutrition and health segments. DuPont said it expected long-term annual earnings growth of 12% (at the high end of company guidance of 10% to 13% annual growth) on long-term sales growth of 8% to 10% in agriculture, 10% to 12% in industrial biosciences, and 7% to 9% in nutrition and health.

What is DuPont really telling investors? Read more

Buy DuPont (DD)

All I want is everything from a stock right now.

Can’t depend on the wider global or U.S. economy providing fuel for earnings and revenue growth so I’d like to buy shares in a company with a strong internal engine.

I certainly don’t want to take on greater than market risk—that’s quite enough on its own, thank you—so a low price-to-earnings ratio and reasonable expectations are basic requirements.

It wouldn’t hurt, as long as we’re on the subject of valuation, if investors were currently overlooking the company’s strengths or mis-characterizing it as slow and sluggish when it’s not.

A dividend yield better than the yield on 10-year Treasuries to support the share price and to give me something to squander on food and gas if I have to wait for a while before the share price goes up.

Oh, and just in case I’m being too pessimistic about the market and the switch is about to flip back to risk on from the risk off position of Monday and Tuesday of this week, I’d like these shares to show me a record that includes a big gain during the rally that stretched from October 3 to October 28.

That’s not asking for too much is it? Read more