DowDuPont Inc. (DWDP)

The merger has been a good move, taking the best of each company: seed business with agriculture operation, material science with speciality products. They will focus far more on returning on capital, reduce risk with less volatility and generally be a more efficient group of three companies vs. their peers. An interesting opportunity.

One of these stocks where you are buying more into the jockey than into the horse. He has done home runs before. It is a cyclical company. Insiders are buying shares now. Valuation is attractive. Not the type of business he is attracted to. Interesting because it is going from one company to three companies very shortly.

A Top Pick October 23, 2017. Down 9%). The merger has gone through. The company will be split into several pieces over the next 24 months. Free cash flow and earnings are growing at 10 to 15%. He expects dividend increases while the company goes through its restructuring. The breakup value of the company would give a 25% gain and the company has stated that it is headed in that direction. The company has been under pressure on the commodity chemical side and the agriculture side. There had been disappointment, though recent earnings were strong and caused a bit of a recovery. In addition, institutional investors are shying away from the company because, in general, they are shying away from owning conglomerates.

One of his favourites for a long time because of its competitive edge. A strong performer. Solid balance sheet. Fundamentally strong. (Analysts’ price target is $80.78.)

He likes the sector. This is a very broad-based materials name, with exposure to chemicals, agriculture, and so on. Some parts of their business are working well now, others not so much. For example, its coating business depends on the success of the auto industry, which might be pulling back. That’s normal for a business that is this broad. In general, materials is a late-stage performer and he has invested in a basket of stocks in this sector. DowDuPont recently reported a good quarter. However, the company’s future plans concern him. The company merged in order to reorganize and align its businesses and then split into three separate companies. He has never seen this intentional process of building to a 3-way split before. This is a multi-year strategy that is working very well so far. It has good global exposure. So he is comfortable with it, but he prefers to go to a broader basket of companies in this late stage rather than buying one and suffering the idiosyncratic risk. But if you were going to pick just one company, this one is broad and could make sense. (Analysts’ price target is $80.78)

They could be more generous with their dividend. It would have solid support at $59, or two times its book value.

He likes the basic material space. Commodities move higher on the later stages of the cycle. This company is not really attractive from the valuation point of view trading at 15 times earning and 8% growth rate.

He thinks over the next two years there is likely a major break up coming of the company into separate entities, which should unlock overall value. If there is continuing growth in the global economy this will help as well.

He likes the company and thinks price could be in a lull presently. They are trying to better align the organization and take advantage of creating two distinct entities. They are caught between now and there is execution risk that this separation could take two years. The stock is still making lower lows and lower highs. Keep it on the radar for about 12-18 months.

A big beneficiary of shale gas. They upscale into the markets and have higher margins. You have significant cost saves. They will eventually split them into two efficient companies about 2020. (Analysts’ target: $82.00).

(A Top Pick Feb 14/17. Up 6%.) He bought this because it was going through this reorganization. They are putting the 2 companies together and then they are going to break them up into 3 pieces. With relatively low feed-cost stocks and an improving economy, the opportunity to grow is there.

It looks like $3 Billion in cost synergies will be conservative. They have upscaled their verticals. Next they are going to split up into two. It is not over valued. (Analysts’ target: $81.00).

Understands they are planning on splitting out into 3 different companies. There is still a lot of private equity people in the name that are trying to work on how everything is going to work out. He likes the name. He recommends this even though he doesn’t own it.