DuPont (NYSE: DD) is becoming more of a science company, and that could bode well for investors.
The company has been pursuing growth opportunities that create higher value – for example, buying Danisco, a global enzyme and specialty food ingredients company, while jettisoning its performance coatings unit, a lower-margin commodity business.
DuPont’s strategy is to build and leverage its science lead in agriculture and nutrition, bio-based industrials and advanced materials. It still faces stiff competition, though, in agriculture, where it faces the likes of Monsanto and Dow Chemical.
Competition with Monsanto cost DuPont a lot in legal fees, and ended with DuPont agreeing to a $1.75 billion licensing deal with the seed giant. So now DuPont and Monsanto will collaborate as DuPont gains access to some key patents in Monsanto’s portfolio.
DuPont itself has a vast intellectual property portfolio, providing a strong base for future growth. To that end, the company has set long-term-growth targets to grow its sales by 7 percent each year while its operating earnings are expected to grow at a 12 percent annual clip.
The main knock against DuPont right now is a stock price that isn’t quite a bargain unless its growth rates rise. For maximum potential growth, consider adding the company to your watch list and waiting for a dip in price to offer a bigger margin of safety.
Ask the fool
Q: Why should I invest in stocks if they all go down with the market? There may be another big drop, so shouldn’t I get out? – G.T., Biddeford, Maine
A: Successful investors have learned that the value of individual stocks as well as the overall market will fluctuate over time, sometimes soaring or sinking sharply. Over the long haul, if you’ve bought stocks at undervalued prices, they should approach or exceed their intrinsic value.
But that can take time, which is why successful investors also need patience.
Exiting stocks makes sense if you really have little or no faith in them. But think twice about exiting in anticipation of a drop, as no one knows exactly what the market will do in the short term. You don’t want to be sitting on the sidelines for months or years, missing out on gains.
That said, if you feel sure that any holding is overvalued, selling can make sense.
Q: If you sell a stock that you hold in a Roth IRA for a loss, can you deduct the loss when you take money out of the Roth? You can deduct investing losses in regular brokerage accounts, but what about Roths? – H.S., Galena, Ohio
A: If you follow the rules, you’ll pay no tax on your Roth withdrawals, but you’ll also get no tax benefits from losses. Since the overall long-term trend of the market is upward, though, the Roth’s benefits tend to far outweigh the costs.
For example, imagine investing $5,000 per year in your Roth and earning an average annual gain of 8 percent. In 25 years, you’d have more than $365,000, and you’d be able to take it all out tax-free! Learn more at fool.com/retirement.
My dumbest investment
My dumbest investment would be when I rolled over about $30,000 worth of retirement account money to Fidelity years ago. A perky young fellow from Fidelity strongly encouraged me to invest in its Growth Company Fund. This was back in January 2000, before so many growth stocks tanked. Ironically, I did sense that many tech stocks were due to crash and burn, but I didn’t bother to check what the fund held. I assumed that the fund managers would be smart enough to avoid damage from crashes. Sigh. – T.G., online
The Fool responds: Many professional investors, as well as amateurs, were stung when the market imploded. But over time, it has recovered. Many brokers and investment salespeople don’t have great track records or your best interests at heart, but others do.
The Fidelity Growth Company Fund actually has a strong long-term record. Over the past decade, it has averaged 10.3 percent annual growth, and since its inception about 30 years ago, it has averaged 12.8 percent annually. Still, you would have done well to take your own market assessment into account in your decision-making.