Another stock leveraged to the oil market is Dupont (NYSE: DD). Because many of the company's products are derived from crude oil, rising oil prices negatively impact profit margins. The only recourse, then, is to raise the price for consumers. But doing so in this environment is unlikely given the weakness in the economy.
As a result, the dynamics of the market are such that profits for DD will be lower in the near term.
That puts the company in a bit of a Catch-22.
DD needs a strong economy in order to pass along higher prices, but that strong economy keeps oil prices moving higher.
Unless there is a big increase in the supply of crude, Dupont is likely to lag the market. I would stay away from this large chemical maker.
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Reader Comments (Page 1 of 1)
7-20-2009 @ 5:32AM
Jason said...
Er, and the guys at Dupont haven't thought about this then? You'd have to be a bit slack witted to not notice that oil has recently hit what will be a medium/long term historical low and not bought all the options they can on oil futures to hedge against the inevitable rise in price.
7-20-2009 @ 10:36AM
Ken said...
You need to get to know the companies you write about a little better. Oil is not a big issue for DD, ther big problem is Monsanto. DD got rid of its petrol based fiber business 2 or 3 years ago.