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<< Return to Part III

This is the fourth installment in a series examining all 30 components of the DJIA. Today's article is on Chevron and Dupont.

Chevron (NYSE:CVX) – “Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream”. (Business Description from Yahoo Finance)

Positives:
  1. CVX is selling at the bottom of its five-year valuation range based on P/E, P/B and P/CF.
  2. The stock yields 3.1%, has an AA rated balance sheet and has raised its dividend payout an average of 8% annually over the last five years.
  3. Chevron is selling at around 7.3 times this year’s expected EPS which is a 25% discount to its five year historical average.
  4. CVX is selling at less than 1 time sales and has profligate cash flow. Chevron market value is less than 6 times operating cash flow.
  5. The median analyst price target on CVX is $121. S&P has a price target of $128 on Chevron.
Concerns:
  • A worldwide growth slowdown could continue to provide tailwinds to oil prices.
Prognosis:
Given its low P/E, solid dividend yield and good growth prospects; I think Chevron provides a great value at this price level. Buy
Dupont (NYSE:DD) – “E. I. du Pont de Nemours and Company operates as a science and technology company worldwide. It operates in seven segments: Agriculture & Nutrition, Electronics & Communications, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals”. (Business Description from Yahoo Finance)
Positives:
  1. Dupont provides a solid 3.5% dividend yield and has raised its dividend by a little over 2% a year over the last half decade.
  2. Dupont’s stock is hovering just over a price level it has bounced off several times in the last year (See Chart)
  3. Dupont has easily beat earnings estimates each of the past six quarters. Consensus estimates for 2011 and 2012 have risen in the last three months as well.
  4. DD’s projected five year PEG of 1.1 is 50% under its five-year average and it has an A rated balance sheet.
  5. The median analyst price target on DD is $62. S&P has a price target of $60 on Dupont.
(Click chart to expand)
Concerns:
  • Lower than expected worldwide industrial growth
  • Dupont is selling at the high end of its five-year valuation range based on Price to Sales
Prognosis:
Dupont is selling at a reasonable valuation as it is priced at just ten times next year’s projected EPS and its 3.5% dividend yield should provide some sort of floor on the stock. However, I think cyclical stocks like Dupont will continue to be hit harder than the overall market until we move past this rough patch of slowing economic growth and worries about Europe. I would hold the stock at these price levels and be a buyer if it moved down to $40.


Disclosure: I am long CVX.