A Higher-Margin Twist on Rising Commodities Looks Attractive Here

Commodities are taking off as investor interest soars. All sorts of raw goods from metals to agricultural to energy commodities have been rising. But investors who look beyond the raw commodities to more advanced materials could be ahead of the curve on this move.

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  • That’s because materials companies tend to be good about raising prices to stay ahead of commodity moves. And they tend to have a built-in profit margin that keeps them going when times are lean.

    That’s why specialty material manufacturer DuPont (DD) looks attractive here. The company has done well with a prior merger, followed by splitting off its high-end market businesses.

    Yet shares are down about 6 percent over the past year, even as revenues have jumped 14 percent. And with an impressive 39 percent profit margin, investors should be clamoring for shares.

    Action to take: Investors may like shares here, as the company is a solid dividend growth play yielding about 1.9 percent right now. And with shares trading at about 6 times earnings, there’s room for some substantial price appreciation and strong earnings in the year ahead as materials prices strengthen.

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  • For traders, the July $80 calls, last going for about $3.35, offer mid-to-high double-digit returns in the months ahead. Traders should look for a jump higher in shares and take profits early, as a move higher will likely come amid the current market volatility, and any gains in shares could be fleeting.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

     

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