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One Hellacious Profit Opportunity I Learned Over Dinner The Other Night

12 | By Michael A. Robinson

For the past 20 years, I’ve had regular conversations with one of the nation’s top chemistry experts.

His name is Dr. Robert Fisher and he is a retired chemist who was also a researcher at the University of California, Berkeley for nearly 40 years.

The fact that he’s also my father-in-law shouldn’t dissuade you from hearing about the hellacious profit opportunity he clued me in on over dinner the other night.

It centers around an industry that I myself have been following since the late 1980s when I began writing about the Reagan-era defense buildup.

Gone, of course from that time, is the Soviet Union and the threat of a nuclear holocaust.

But what remains are a whole slew of “Miracle Materials” that scientists were experimenting with to help give the U.S. military a secret edge.

Today, these Miracle Materials touch nearly every aspect of our economy, from smart phones, to electric cars, computers, semi-conductors, consumer electronics and satellite communications.

In fact, they’ve now become so critical to the global economy, they’re ready to unleash a $1 trillion windfall.

And one company stands to benefit tremendously…

It’s a company a lot of people will be familiar with and may even dismiss as boring.

But the truth is, I know about a “special situation” transaction this company is getting ready to engage in… a transaction that could unlock fast returns exceeding 100%… even 200%.

The Golden Age of Materials Science

You see, we’ve now entered what I refer to as the Golden Age of Materials Science.

Polymers, specialty coatings, composites, even silica or sand… A lot of people dismiss these Miracle Materials (also referred to as Exotic Materials by industry insiders) as decidedly low tech.

That’s a big mistake because tech products that have become integral to our daily lives can’t be made without them.

Take the iPhone from Apple Inc. (NasdaqGS:AAPL). Clearly, this smart phone was a game changer because it put a combination phone, music player and Web-surfing minicomputer in the palm of your hand.

But to make the breakout device suitable for the public, Apple cofounder Steve Jobs needed to find a shatter-resistant material for the screen. He knew people were bound to drop the device, and he didn’t want the company’s future to hinge on a material that broke easily.

That would have been both a PR and financial disaster for the Silicon Valley firm.

Enter Gorilla Glass from Corning Inc. (NYSE:GLW). To make the glass thin, light and both scratch and crack resistant, the chemical giant manufactured the material using a molten alkaline salt bath that provided enormous strength through molecular compression.

PC Magazine estimated that by 2010, nearly 20% of the world’s smart phones contained Gorilla Glass, or about 200 million units. Corning introduced Gorilla Glass 2 in 2012, and the company now says that when all consumer electronics are added up, the material is contained in nearly 1 billion devices in the world today.

That’s just one example of the impact Miracle Materials can have. It’s no exaggeration to say that they help form the backbone of high tech itself.

They’re also necessary for making semiconductors – the basis of the PC and smart phone revolutions – and are referred to as semiconductor grade chemicals.

A recent report by the analytic firm Research and Markets forecasts that this Miracle Material sector will have a total value of more than $610 billion by the end of 2016. That’s a 28% increase from the $476 billion value that Research and Markets put on this sector as of 2010.

At that rate of growth, the industry could hit $1 trillion roughly a decade from today.

Of course, tapping into that wealth is our goal here at Strategic Tech Investor.

In the past, the problem has been that some of the applications for these Miracle Materials are so new it’s hard to find companies that offer a direct play.

But I just found a special situation that could change all of that in a hurry.

The Easiest Money You’ll Ever Make

The special situation I’m talking about is called a corporate spin-off.

Back in July we talked about how these corporate spin-offs can be a great way to build up your net worth with a “twofer” play. You buy stock in the parent company and then get shares in the spin-off unit as a special dividend.

A number of institutional and academic research studies demonstrate that spin-off stocks trounce the general market averages for as long as three years after the transaction.

For example, a Lehman Bros. study found that spin-off companies beat the market by 40% in the first two years, while a Penn State University study found a three-year return of 76% — which was enough to beat the market by 31%.

Now you know why I’m so excited that E I Du Pont De Nemours & Co
(NYSE:DD) is spinning off its performance chemicals division.

CEO Ellen Kullman said last month she wants to spin-off the unit so she can give the parent company a much sharper focus on new growth initiatives.

For instance, Kullman wants DuPont to emphasize a shift to what she calls “science-driven” businesses like agriculture, nutrition products and biotech. After the separation, DuPont will slim down from the current $35 billion in sales to about $28 billion.

The remaining $7 billion in sales will accrue to the performance chemicals company. Right now, that division is the company’s largest single unit.

In this year’s third quarter, performance chemicals had $1.7 billion in sales and $254 million in operating earnings, making it the company second largest source of income.

DuPont hasn’t said what the name of the new unit will be. But performance chemicals will have about 7,000 employees, will start with operating cash from the parent firm and will be separated within 18 months. Kullman also said the transaction will be tax free to shareholders at the time of the spin-off.

I think the transaction makes a lot of sense for DuPont and its shareholders. As its structured now, the conglomerate hasn’t given the performance chemicals business the type of attention it deserves.

Kullman has said she’s uncomfortable with the fact that by their very nature chemicals can have more volatile sales than DuPont’s other products for the auto, energy and electronics markets.

But I believe that with the right new management team in place the performance chemicals business can do extremely well. Then again it has some great products to start with.

Just take a look at fluoropolymers. These are best known as non-stick coatings for frying pans. But they are used in a wide range of applications that span construction, aerospace, and electronics.

It’s also a major supplier of titanium products, most notably titanium dioxide. Besides an ingredient in paints, titanium also is used to make electrical conductors found in a wide array of electronics.

Even if the spun-off unit just makes the average return for investors, it stands to greatly beat the S&P 500.

When it comes to spin-offs I’m reminded of the fate of photography pioneer Eastman Kodak Co.

After failing to keep pace with the digital photography craze, itself being supplanted by camera phones, Kodak filed for bankruptcy nearly two years ago.

Fortunately for investors, Kodak had spun off its chemical business in 1994.

Today, Eastman Chemical Company (NYSE:EMN) ranks as an industry leader with a $12 billion market cap and whose stock is up 350% over the past five years, not counting the 1.5% dividend.

Unlike Kodak, DuPont qualifies as a tech investment in its own right. It’s already involved in electronics and biotech. With a market cap of $57 billion, DuPont trades at roughly $62 a share. The stock is up 45% over the past year compared to the S&P 500’s 28% return.

And the spun off shares you get for free also are a part of the global tech economy.

As I like to remind investors, the road to wealth is paved with tech. And when you can score tech-oriented stocks for free, the journey just goes that much faster.

[Editor’s Note: Your feedback is very important. As always, I welcome your comments, questions, suggestions, and opinions. Post a comment below … I look forward to hearing from you.]

12 Responses to One Hellacious Profit Opportunity I Learned Over Dinner The Other Night

  1. WAYNE JAMES says:

    LOOKING FORWARD TO MORE INFORMATION ABOUT THIS SPIN OFF ADN OTHER PRODUCTS. I AM 79 YEARS OLD AND DO NOT HAVE A RETIREMENT PROGRAM AFTER WORKIGN 56 YEARS FOR NON PROFIT ORGANIZATIONS. I DOD NOT HAVE MUCH MONEY TO INVEST OR PAY THE BIG FEES FOR THE HIGH PRICED NEWSLETTERS AND SEVICES. SO I NEED ALL THE GOOD INFORMAITON ICAN GET THT WILL PROVIDE SOEM GOOD DIVIDENDS aRE YOU RECOMENDING WE BUY SOEM DuPont NOW?

  2. Natalie. I Giroux says:

    Hello Micheal,
    I follow your publication with great interest and quite enjoy reading some of your comments. I do take some of your ideas on investments under advisement and have invested in a couple which are going north, so I’m very pleased. I have been looking at Dupont on and off for the dividend and am now looking at it with more interest because of this split you are writing about today. Will you be investing to take benefit from the split. I am seriously considering it. Thank you for your great info, I really appreciate you.

  3. leslie kardos says:

    I think this is all very interesting, but am I to understand that if I pay to subscribe to your letter, that you tell ue what the tickers for the companies are, and when to buy? Because I dont see that key information anywhere.

  4. Norman Busch says:

    Interesting, but I heard you recently on the radio talking about sensor companies. I was in heavy traffic and could not make any notes and at my age could not remember any names of companies by the time I got home. How about discussing this interesting future industry. Thanks

  5. Jim Maguire says:

    Spin offs also happen when a segment of a company is facing regulatory action, fines, suits, etc. Historically those spin offs take the encapsulated problems out into deep space (and disappear) as a way to protect the larger company. I need to drill down deeper here before making any decisions, others would do well to look closer too.

  6. Pauline Drent says:

    Continuing my previous note….. I was very excited to read Bill Patalon’ Briefing on your DuPont’s Spin-Off story, and bought small DD shares.

    I understand the new Spin-Off company shares are free, when the transaction is completed.

    Since I am not quite familiar with this kind of offer from a large
    corporation like Dupont’ s free Stock of Spin-Off, I would appreciate your general corporate transaction practice input, whether I should buy more DD stock now or the Spin-Off Stock after the transaction later.

    Thanks again for sharing your industry knowledge, Pauline Drent

  7. Martin Mannak says:

    Hello Michael,

    >And one company stands to benefit tremendously…

    >It’s a company a lot of people will be familiar with and may even dismiss as >boring.

    You refer here to the firm DD? (Dupont de Nemours)
    Should we invest in DD?
    Kind regards,

    Martin

    • TOM SCOTT says:

      There will not be an IPO, just a spinoff. If you own shares of DD you will get a certain # of shares. For example, if you own 100 shares of DD you will get approximately 12 shares of the spinoff chemical company. Or you can just wait until the spinoff happens & buy the spinoff company shares. There will be no IPO.

  8. Aristo Kiziroglou says:

    Thank you for your insights on thechnological developments. Nevertheless I would like to echo a previous reply above by one your subscibers to the effect that I would particularly like to receive your SPECIFIC recommendations on which are the leading companies of the thechnological areas you discuss and that you recommend we purchase : which companies, when to purchase, up to what price to pay, etc. Looking forward to receiving your specific recommendations.
    Regards.

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