We're buying the dip on a stock after Wall street overreacted to last week's mixed quarter

Published Mon, Nov 6 202312:20 PM EST

We're buying 150 shares of DuPont (DD) at roughly $69.85 each. Following Monday's trade, Jim Cramer's Charitable Trust will own 870 shares of DD, increasing its weighting to 2.15% from 1.78%. Now that our trading restrictions are cleared, we are adding to our DuPont position with the cash raised from our Veralto (VLTO) exit like we said we would last Thursday. We thought DuPont's 8% pullback in reaction to its third-quarter results last Wednesday looked too aggressive considering the fundamental story around the bottoming of its Electronic & Industrial (E & I) business remained unchanged. To be fair, the stock deserved to be dinged because it was a mixed quarter from the chemical and material manufacturer. While Q3 beat estimates on EBITDA (earnings before interest, taxes, depreciation, and amortization), the company lowered its full-year outlook below Street expectations, mostly to reflect some ongoing softness in consumer electronics demand and slower water demand in China. We're willing to look past the softness in consumer electronics because it's only a small push out of what should be a strong profit recovery in 2024. While the water quality business, which is similar to what Veralto does, needs to stabilize, it's not central to the DuPont story. And, it didn't make sense to own stocks of two companies that deal in water. DD YTD mountain DuPont YTD One of the main reasons why DuPont's guide underwhelmed was that management said it did not expect a significant sequential improvement in consumer electronics demand in the fourth quarter. This is not a thesis-changer because what's more important is that the bottoming process is here, and the inflection point of growing demand for both personal computers and smartphones is coming. Recent earnings reports from chip suppliers to those industries — like Qualcomm (QCOM) for smartphones and Advanced Micro Devices (AMD) for PCs — support the claim. The inventory correction is also almost over — setting the stage for the return to growth in 2024. Within DuPont's E & I business, management sees increasing demand for AI and traditional servers as an additional driver of the 2024 recovery profit recovery. This is a little bit easier to see based on the billions of dollars the mega-cap tech stocks are spending with their capital expenditure budgets. "In general, demand for high-performance and high-density memory chips is accelerating, supported by AI growth, as well as overall growth for new mobile product launches. This directly correlates with DuPont's product strengths within the semiconductor and consumer electronics markets," CEO Ed Breen said on DuPont's third-quarter earnings call. The weakness in Water & Protection (W & P) was more of a surprise due to weakness in China. While it's worth monitoring in the quarters ahead., these Safety, Shelter, and Water-focused end markets are generally more stable over time. But the heart of the DuPont story is E & I — because as volumes bounce back next year, the segment's operating margins should return closer to the low 30s on a percent basis from 28% in the third quarter, leading to strong year-over-year EBITDA and earnings growth. With the E & I recovery still on track, this recent pullback should be a buying opportunity. And, that's why we're stepping in. (Jim Cramer's Charitable Trust is long DD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Edward Breen, Executive Chairman of DuPont, speaks during an interview on CNBC on the floor at the New York Stock Exchange, June 3, 2019.

Brendan McDermid | Reuters