Few stocks are seeing such wildly divergent views as 3M (NYSE:MMM). On the one hand, they make masks and medical equipment, where production is essential. On the other hand, they make things like Post-It notes and lubricants where production is non-essential.
Then, again, they have a fat dividend with a very fat yield of nearly 4.3%. On the other hand, who knows if it will pay the dividend?
The bottom line is a stock that mostly tracks the market. So far in 2020 3M is down 24.2%. The S&P 500 index is down 23%.
The Good…
In addition to masks, essential for medical workers and for social distancing, 3M makes respirators and personal protective equipment (PPEs).
Ford (NYSE:F), which is shut-in by the virus, is now teaming up with the mask-maker to make those respirators. They’re using things like fans from Ford trucks and batteries from power tools. CEO Mike Roman said the company is exploring “all available opportunities to further expand 3M’s capacity.”
Before the crisis, MMM stock was considered a “dividend aristocrat.” It was the kind of stock I’d be likely to endorse. In fact I did endorse it in late February. My InvestorPlace colleague Thomas Niel says the stock is already “priced for disaster,” a good defensive play.
Management seemed to lean into the virus, buying Acelity last year. Acelity, based in San Antonio, makes advanced wound care products. The margin hit, combined with restructuring charges, seemed a short-term problem with long-term promise.
At its April 3 closing price of $133.79 per share, 3M’s market cap is down to $76.9 billion. That’s about 2.3 times sales, a price-to-earnings multiple of 17. Last year’s quarterly dividend of $1.47 per share was yielding 4.4%. The company is next due to report earnings April 28. Analysts expect $2.06 per share of net income on revenue of $8.23 billion expected.
All is well, right?
… and the Bad
I’m not so sure.
While 3M makes products like hand sanitizers that are in high demand, it’s not a profiteer.
Many of its products are not adapted to the moment. Things like lubricants and coatings, decorating and school supplies, sandpaper and aircraft painting services, aren’t needed right now.
As its fourth quarter earnings release made clear, 3M is still in court on the ingredients used in its plastics. It took a pre-tax charge of 29 cents per share last quarter . Moody’s recently cut its credit rating. That fourth quarter also missed analyst expectations.
As much as 3M is helped by its medical business, it’s hurt by the falling price of oil. This impacts its industrial business. Masks are just 1% of the company. The total health care industry represents just 17% of sales.
The Bottom Line on MMM stock
InvestorPlace’s Larry Ramer recently suggested you sell MMM stock, believing gains in health care won’t offset losses in the industrial and consumer businesses.
I believe him, but unless you need to cash out, hold on. The company isn’t going under.
While 3M only had $2.4 billion in cash in December, there were many levers it can pull to stay afloat. Once the crisis is past, everything is going back up. Then again, where else are you going to put your money, other than cash?
It’s true that 3M may go down from here, but so may everything. I wouldn’t buy it here but this, too, shall pass.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
