Today I got a call from a friend, asking me my opinion of DuPont. I worked for DuPont from 1987 to 1990, and of course DuPont is one of those large and historically great American companies. An early manufacturer of gunpowder for our war efforts, the company went on to innovate such great products as Nylon, Teflon and Kevlar. In The Graduate the famous recommendation to Dustin Hoffman to think "Plastics" is often credited as a plug for DuPont.
But, innovation has been slack at DuPont for quite a few years. They haven’t brought forward one of those great products for a long time. And, their returns have suffered as the company shrunk – through a combination of selling businesses (they owned, and then sold in the 1990s, Conoco for example, and spun off their pharmaceutical business in a joint venture to Merck) and declines in some "core" markets – like printing and other films. Their stock price has suffered.
Today, however, Dupont’s stock broke out to a short-term high after announcing expectations for better earnings. Several technicians said that with only a small additional move upward the stock could jump another 20%. Is this a juicy investment opportunity?
When I read the Marketwatch release, I was disheartened. DuPont didn’t jump up on an announcement of new products. Nor a breakthrough innovation. Nor was there any sign of any major Disruptions happening to their Lock-in, or new White Space projects being created. Instead, I learned that earnings are predicted to rise from closing several labs, shuttering plants and laying off more people. That, plus they think a horrible European market will finally take a turn for the better – no thanks to any new products from Dupont but rather just because enough time has passed while the marketplace stunk to expect an upturn.
It’s hard for me to get excited about DuPont. Even though their history is undeniably great. They keep cutting capacity, cutting jobs, taking restructuring charges and waiting for an economic turnaround. Their improved profits are short-term financial machinations. What would excite me would be to hear about some Disruptions in their internally focused Lock-in. Or to hear about new joint ventures, or other White Space projects intended to spark innovation and create new markets. Without those signs, I’d worry that the short-term stock improvement will just be short-term.