Everybody and their uncle have asked me to give my opinion on investing in face-mask stocks. I’m not one to jump on trends like this, but with the coronavirus from China spreading fast, I can see the validity of an investment in sanitary-protection items. The most direct exposure to this niche might be Alpha Pro Tech (NYSE:APT), but that’s a small company. For a more diversified mega-cap with a pedigree, I recommend 3M (NYSE:MMM) stock.
The face-mask angle is certainly worth discussing, but MMM stock has shareholder value outside of virus-protection products. In fact, I’d say the shares have been underpriced for a while now, making 3M shares a buy-and-hold worth serious consideration.
Unmasking a Great Company
The spread of the Covid-19 virus has changed the conversation for just about every stock trader, and this has put 3M in the spotlight as the company does indeed manufacture face masks. However, some fear has set into the broader equities market and has sunk most large-cap stocks, including 3M.
In the colorful verbiage of Bank of the West economist Scott Anderson, “The coronavirus is rapidly slowing the momentum of the global economy and sucking the oxygen out of financial markets.” It also sucked some of the market capitalization out of 3M. And its shares have recently declined in tandem with its
The timing couldn’t be much worse for 3M as its shareholders have been suffering since the stock peaked in early 2018. The company has significant operations in China, so the coronavirus’s well-documented supply-chain threat is particularly disruptive to 3M.
On the other hand, 3M stock performed well during the SARS scare of 2002 to 2003. And let’s not forget that this company has what Melius Research analyst Scott Davis perceptively deems “a flu/coronavirus hedge,” as “3M is the largest U.S. supplier of N95 respirator masks.”
A Bold Upgrade
Amid a chorus of doubtful voices, Davis dared to assign a “hold” rating on 3M stock and even raised his price target from the already contrarian $191 to an eye-popping $205. Should our eyes really be popping, though, if there are perfectly good reasons to anticipate a reversal of fortune for 3M?
I do believe that such reasons exist, even if they remain buried in the headlines. Davis’ “a flu/coronavirus hedge” rings true (to me, at least) and the analyst also observes that cycles of business depression only last for so long. The implication, according to Davis, is that 3M should be nearing the end of that cycle:
“It’s short cycle, now coming up on a full five quarters of a recession and ninth quarter of weak results. We’ve had 5 meaningful negative earnings revisions … and a normal down cycle is four to six quarters.”
With 3M CEO Mike Roman assuring shareholders that the company is “ramping to full production” and “going 24/7” in its manufacturing of protective face masks, I imagine that the Dow’s scourge might be 3M’s savior.
Covid-19’s spread would be a tragic driver of business for 3M. But investors should note the potential of a turnaround story and position themselves accordingly.
The Takeaway on MMM Stock
I must give credit where it’s due, as Davis’s 3M upgrade and price target are far from the consensus on Wall Street. Like him, I’m going to recommend the stock as an out-of-favor, dividend-paying dark horse of the Dow whose cycle of despair could, I hope, be nearing its conclusion.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.
