It’s no secret that the market has been a roller coaster over the past year or so. Still, we’ve been able to find profitable picks by being cautious and selective, and by honing in on great values. A perfect example is 3M (MMM), which we bought in early September of last year for $140. The stock has performed well for us — to the tune of more than a 13% gain — but it’s time to bid MMM goodbye.
3M is a solid company. The diversified tech pick has five segments (industrial, safety and graphics, electronics and energy, health care, and consumer) each serving a wide range of markets. This diversity helps MMM weather economic and stock market storms.
Plus, 3M is a company that rewards investors with a hearty dividend yield. That’s part of the reason I was bullish on the stock in the first place.
In fact, management just hiked the company’s payout earlier this month — something that makes investors smile, even when the payout comes from a company with modest organic growth. Despite the fact that shares have gained almost 13% in the past month alone, the company’s forward yield is just shy of 3%, which is especially appealing in today’s low-interest-rate environment.
Still, for any stock pick, it’s important to know when to pocket your profits and head for the hills — especially during a time when profits are a bit harder to find! While 3M stock has been a strong outperformer, that puts shares at resistance levels that they struggled to break through late last year, as seen in the chart below.
Shares rallied after we bought in September, soaring from under $140 to just under $160, but failed to keep the uptrend going. They then fell back around to our buy price before making another run.
History could very well repeat itself, though, as we once again near $160.
3M Looks Like Trouble From Here
This is especially true considering the first failed uptrend came right as the company lowered 2016 expectations. Those lowered expectations are reflected in the current analyst consensus: Sales are slated to decline slightly in 2016, while earnings are expected to tally $8.24 per share. While that’s not terrible (it still represents almost 9% year-over-year growth), it’s significantly lower than the consensus even just three months ago, when EPS were expected to be $8.44.
The downtrend continues even beyond the current year: Earnings estimates for 2017 have fallen from $9.17 three months ago to just $8.91.
Considering all the global economic uncertainty right now, I don’t expect 3M to surprise to the upside — and that means shares look just a bit frothy. Thanks to the recent run, 3M stock is trading for around 18 times forward earnings, which is more than two times its expected earning growth long-term.
Between the solid profits we already have in the bank, the resistance 3M stock is pushing up against and the fact that shares are fully valued in an uncertain global climate, it’s time to take our money and run.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader,Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.