Sometimes the market, the economy and a company’s business all come together in a way that can turn a relatively dull, slow-growing stock into something much more exciting: a fast grower.
That’s what’s happening lately with 3M (MMM), the diversified industrial and consumer products giant. This Dow Jones Industrial Average component, often considered only a dividend stock suitable for retirees, is much more than that.
3M stock has been on an impressive run. Since it closed at $123.90 on Feb. 3 this year, to its recent closing price of $158.35, 3M shares have risen 28%. The maker of everything from Scotch brand tape to overhead conductors for power transmission has underpinned this run with ongoing solid operational results.
A Steady Performer
As the market keeps rising, given the company’s solid operations, investors can look for MMM to continue to climb as well.
3M reported third quarter results in late October that continued to show the company’s operational strength. 3M reached net income of $1.3 billion with earnings per share of $1.98, an increase of 11.2% compared to last year’s same quarter. The company posted solid sales of $8.1 billion, a 2.8% increase from last year’s third quarter. Organic sales, which are sales prior to currency exchange, grew strongest in 3M’s healthcare division with a 5.4% increase. Geographically, the U.S. remained the global bright spot with sales growth of 6%. All five of 3M’s main business segments showed sales increases.
Investors in MMM clearly noticed the company raised its guidance, expecting 4% to 5% sales growth for the full year compared to earlier guidance of 3% to 6%. 3M raised earnings expectations for the full year 2014 to the $7.40 to $7.50 per share range instead of $7.30 to $7.55.
While the 3M business performance doesn’t scream out spectacular numbers, given the recovering U.S. economy and the sluggish global economy, the company deserves credit for cutting through the underbrush of this still thorny business climate.
Dividends and Buybacks
MMM’s stock appreciation story is appealing right now, investors shouldn’t forget about its dividend. The stock currently yields 2.2%. Plus, 3M has paid dividends for 97 consecutive years with increases for 56 consecutive years. The company also re-purchased $1.2 billion of its shares in the third quarter.
The outlook for the overall capital goods space and industrial conglomerates in particular, is promising. United Technologies (UTX) has improving analyst estimates for earnings and revenue, though the market hasn’t loved that stock like it has MMM. Honeywell (HON) has positive earnings and revenue prospects also, and the market has pushed up its shares.
The market, though, seems less confident with some industrial areas such as infrastructure and construction, as emerging markets in Asia have slowed down for now. Stocks that are more concentrated in heavy industry, which lack the flexibility of 3M, aren’t as well liked by the market at the moment. Caterpillar (CAT) comes to mind. Its forward earnings estimates aren’t quite as robust as some of the others.
The strength of 3M is that it’s widely diversified in non-industrial areas, so it’s not solely dependent on intensive capital goods activity. 3M also has excellent leadership with CEO Inge Thulin and the company always looks to innovate to keep an edge in product development.
What Should Investors Do?
There are many long-term investors in 3M stock who buy it strictly for the dividend, hold their shares and add to their positions over long periods of time. I would recommend they stay the course and keep some cash available to buy on inevitable dips. Likewise, true bargain hunters may want to wait to buy when the stock is cheaper.
The relentless momentum of 3M stock may be temporary. Yet its progress invites traders in who are looking for the stock to continue its run. With the market still surging, it looks like 3M will continue to be both a long-term investors’ and a traders’ delight for a while.
As of this writing, Greg Sushinsky did not hold a position in any of the aforementioned securities.