3M Stock Is a Good Name to Buy and Hold

Advertisement

China’s gradual return to normalcy provides hope for countries that are still experiencing the peak of the novel coronavirus pandemic. Ultimately, the world will overcome this black swan event, and economic growth will return. From an investment perspective, the best strategy is to gradually accumulate quality stocks across sectors. One company that should be on investors’ radar is 3M Company (NYSE:MMM). So far this year, MMM stock has declined by 16%. The shares are attractive at their current level.

Despite Coronavirus Demand Bump, Skip MMM Stock for Now

Source: JPstock / Shutterstock.com

3M has been in the news recently,  with President Donald Trump slamming the company for sending its N95 masks to other countries. However, the good news is that the company has reached a deal with the government to provide the U.S. with  166.5 million masks over a period of three months.

3M is also collaborating with Ford Motor (NYSE:F) to produce air-purifying respirators (PAPRs). These initiatives will bolster 3M’s near-term revenue to some extent. However, those are not the only reasons I’m positive on MMM stock.

Valuation is the most attractive aspect of 3M, as it has a beta of 1.01 and an annual dividend of $5.88. Further, Goldman Sachs has named 40 stocks whose dividends are safe during crises, and 3M is on that list.

Moreover, based on its earnings per share guidance of $9.53 for the current year, 3M Company is trading at a relatively low price-earnings ratio of 15.5.

Long-Term Growth Catalysts

For the current year, 3M is expecting the top line of its safety and industrials segment to rise 0% to 2%. However, after the coronavirus crisis ends, I expect the segment’s growth to accelerate. It’s worth noting that even as the services sector plunges, the manufacturing sector seems to have bottomed out. That is a positive sign for 3M’s safety and industrials unit.

The personal protective equipment market was worth $47 billion in FY18. The market is expected to have a compound annual growth rate of 7% between 2019 and 2025. 3M is well positioned to benefit from this growth. In particular, when China’s automotive and electronics industry gains traction, the segment’s revenue will rebound.

3M also manufactures a wide range of products for the mining, oil and gas industry. In the near-term, this segment has headwinds. However, emerging economies still need a great deal of energy, giving the unit strong long-term growth opportunities.

It’s worth noting that 3M is focused on expanding its consumer healthcare business. Its acquisition of Acelity has made it a leader in advanced wound care.

The company’s spending on research and development came in at 5.9% of its sales in FY19. Its  investment in innovation will enable its healthcare business to grow.  In particular, the company’s skin health and infection prevention products, its inhalation and transdermal drug delivery systems, and its oral care solutions will drive growth.

I also believe that the coronavirus pandemic will cause spending by consumers and governments on healthcare to climb, likely benefiting 3M.

My Concluding Views on MMM Stock

3M has global operations with a strong presence in attractive growth markets like China and India. In addition, its focus on consumer and healthcare products is likely to accelerate its growth in the coming years. My point is underscored by the fact that analysts, on average,  expect its  earnings to increase a mean 9.5% over the next five years. That growth will take MMM stock higher.

Additionally, 3M has enough money to pursue acquisitions that would boost its earnings momentum.

Overall, the valuation of MMM stock is attractive. Once global economic growth gains traction, the shares can trend meaningfully higher.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock-specific articles with a focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

 


Article printed from InvestorPlace Media, https://investorplace.com/2020/04/3m-stock-is-a-good-name-to-buy-and-hold/.

©2024 InvestorPlace Media, LLC