Investors Should Follow Superstar CEO Ed Breen Into DowDuPont
Vince Lombardi was the coach of the Green Bay Packers. Under his leadership, the Packers won two Super Bowl championships. His team won close to 74% of the games they played.
Bill Belichick is the coach of the New England Patriots. Under his leadership, the Patriots won five Super Bowl championships. His team won more than 68% of the games they played.
Football coaches and CEOs have a lot in common.
Time and again, great leaders put in a position of leadership produce outstanding results.
In the world of sports, the coach gets a lot of the focus. Any decent sports fan can tell you the names of not only the star players on a team but also the head coach.
Yet, in the world of investing, most investors have no idea who the CEO is or what his track record has been.
One of the CEO’s most important jobs is capital allocation — investing capital that earns high returns for shareholders.
A great CEO who knows how to allocate capital properly is a shareholder’s dream. And I’ve found one that is going to give savvy investors a triple-digit win…
The CEO Who’s Leading an American Icon to New Heights
Today, I’m focusing my attention on superstar CEO Ed Breen.
If you haven’t followed him, then you might not be aware that he is a value creator who knows how to make shareholders money.
After just two years as CEO of electronics company General Instrument, Breen sold the company to Motorola for $17 billion.
That’s an 800% increase from when he took over!
Next, he stepped in to clean up security company Tyco when it was on the brink of bankruptcy. This was right after a scandal that jailed its former CEO, Dennis Kozlowski.
Breen averted disaster at Tyco by cutting incompetent management and cleaning house of the board of directors.
He then started to focus on growing the company’s free cash flow by cutting debt.
When Breen was finished, Tyco’s stock rose more than 700% from the day he took over.
In November of 2015, Breen was appointed CEO of a company that led in innovation and market leadership in the chemical industry.
In recent years, however, the company grew bloated with excess costs. It began to trail competitors.
His goal was to cut costs and split up the original company into separate, more focused companies.
Superstar CEO Will Add Billions to This Company’s Bottom Line
If you haven’t figured it out already, the company I’m talking about is DowDuPont Inc. (NYSE: DWDP).
Dow Chemical and DuPont agreed to a merger just a few months after Breen was designated CEO of the company. They completed their merger in August 2017, and Breen became CEO of DowDuPont.
One of the first things Breen did was create shareholder value.
He cut several layers of management that were slowing down the company and decreasing shareholder value.
He then made plans to spin off parts of the company.
This is right out of Breen’s playbook. He used the same strategy when he split up Tyco … and the stock price soared 700%.
There were several great businesses buried in DowDuPont’s bloat that were not reflected in the stock price.
The spinoffs created leaders with best-in-class margins, in each industry.
The business was separated into three sections that focused on the production of specific products.
- New Dow will make plastics for packaging and chemicals in the industrial, infrastructure and consumer spaces.
- Corteva is the agricultural division. New products launching between 2019 and 2021 will have peak sales of $4.5 billion and should drive earnings higher.
- And the New DuPont will have four divisions: electronics and imaging, safety and construction, nutrition and biosciences and transportation and advanced polymers. Each of these divisions is very different and may eventually be spun out as well.
DowDuPont should complete the separations by June 1 of this year.
Breen is setting up each company to have margins that are on par with the leanest organizations in its industry.
A big part of the savings will come from using its purchasing power to get discounts on raw materials and other goods.
These businesses won’t resemble the bloated corporate overhead of DuPont’s past.
Combined, the three businesses will reduce costs by $3.3 billion.
Then there is growth upside.
Each business will be run by a CEO solely focused on that individual business’s performance, which should yield better results.
Because of the Dow merger, each business will have stronger research and development teams as well as a wider portfolio of products to offer customers.
Breen projects that the three companies will add $1 billion to their bottom lines from these growth avenues.
Wall Street is missing this point.
Knowing Breen’s track record tells me that $1 billion will be well on the low side.
Wall Street Is Missing out on a Bargain Today
In the meantime, the company is trading at a large discount.
Wall Street is waiting for the dust to settle around DowDuPont. It’s not pricing in the potential upside after the spinoff.
I don’t need any further clarity.
Actions, track records and reputations of great CEOs — or what I call Alpha Managers — tell me all I have to know.
In fact, Breen recently called DowDuPont’s stock price “the biggest disconnect” from fundamentals he’s ever seen in his career.
When asked to confirm, he said: “Yes, I think I did say it was the largest. I’ve been a CEO since like 1997. I don’t think I’ve ever made that comment before. Look, you see our growth rates … we’re growing 15% top line last quarter.”
DowDuPont’s full year results for 2018 continued to show strong performance.
Revenue rose 8%, and profits grew by 13%.
And the stock price fell, which is great news. The current price is actually an even better bargain!
Breen put his money where his mouth is: He personally bought $2 million of DowDuPont stock on August 8, 2018 for around $68 a share.
This Undervalued Stock Is Your Bet for Big Gains
I follow Alpha Managers like sports fans follow coaches.
I found there is nothing easier than identifying a great CEO and investing alongside them.
Some of the recommendations I’ve made in the past started out as bets on the jockey, and not so much on the horse.
The CEOs of these companies had great track records of increasing shareholder value.
When they went to work for another company, I followed them and recommended shares.
So far, the strategy has paid off:
- Huntington Ingalls Industries is up 442%.
- GoDaddy is up 82%.
- Tableau Software has risen 93%.
By combining the longtime American icon DuPont with Dow Chemical, then separating them into three companies, Ed Breen made a move that will unlock shareholder value.
You don’t get many opportunities like this one. I highly suggest you buy in today and don’t miss out on the opportunity to make stellar profits.
If you’re underinvested or want to add to your position, I recommend buying DowDuPont Inc. (NYSE: DWDP) at a price no higher than $65 per share.
Senior Analyst, Banyan Hill Publishing