In early February, I encouraged InvestorPlace readers to consider the contrarian case for 3M (NYSE:MMM). While I mentioned that it was a problem child, the beleaguered industrial firm suddenly became relevant due to the novel coronavirus. Back then, though, many analysts compared it to the flu. Therefore, the narrative for MMM stock seemed much riskier than I was making it out to be.
One of the prominent voices that took an exception to this view was our own Will Ashworth. Although he respected my thinking process about 3M’s relevancy regarding its demand surge of N95 facemasks, he didn’t “see this being the difference-maker” for MMM stock. Ultimately, he argued that the opportunity cost of owning shares at that point (Feb. 20) was too high.
You know what? As usual, Ashworth was right. Immediately after his article was published, MMM stock tanked badly. Only recently has it started to claw back some of the losses it had incurred.
During this time, 3M reminded me of another embattled industrial giant, General Electric (NYSE:GE). There was a time when absolutely nothing appeared to go right for GE. Despite my gut telling me that this coronavirus thing was serious, it didn’t do anything for 3M stock.
To be fair, accusations about 3M providing critical personal protective equipment (PPE) to foreign buyers who outbid Americans in need did nothing positive for the organization. In fact, when “Fox Business” host Maria Bartiromo grilled 3M CEO Mike Roman, I was actively cheering her on.
Later, the Trump administration got serious with its invocation of the Defense Production Act. Now U.S. healthcare professionals are getting the PPEs that they desperately need.
Possible Long Battle Benefits MMM Stock
As I mentioned, I was not at all happy about how 3M conducted its business at this critical time. Frankly, I was tempted to reverse course on my opinion regarding MMM stock.
However, this is a tricky case because despite the ugly (and I would argue unnecessary) fiasco, 3M finds itself a beneficiary of supreme relevance. Further, I would gently push back against Ashworth’s argument that facemasks won’t move the needle for 3M. Right now, it’s all facemasks and other critical PPEs.
First, while I was wrong about the immediate trajectory of MMM stock, I was right about the coronavirus. In late February, I warned that we may not be taking this outbreak seriously enough. Because several nations were caught with their pants down regarding Covid-19, they now have to scramble for PPEs. Though I’m not defending management’s actions, this was one of their counterarguments against the White House. As a multinational corporation, 3M serves the needs of a global consumer base.
Second, global coronavirus infections are somewhat staggered. Today, the U.S. is the Covid-19 epicenter. Tomorrow, it could very well be another country.
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For example, if you look at infection rates for BRICS nations (Brazil, Russia, India, China, South Africa) at the onset of major community spread (between 52 and 62 cases), you’ll notice that all countries except China and South Africa feature similar trends.
Moreover, the “BRI” nations appear to be charting a longer infection curve. In contrast, China featured a sharply accelerating curve following community spread. However, through draconian government actions, the Chinese government flattened their infection curve.
I’m not entirely sure how effective contain measures are for the BRI nations. But at this rate, we’ll see steady growth for an extended period, which cynically benefits MMM stock.
Don’t Forget About Domestic Demand
Back home, our infection curve has substantially and thankfully declined. In fact, we’ve made such great progress that senior White House adviser Dr. Anthony Fauci projected down U.S. coronavirus-related deaths to 60,000. Previously, health experts had forecasted a range between 100,000 to 240,000 deaths.
In this case, some might assume that this is a negative for MMM stock due to declining demand for facemasks. But even here, I maintain a contrarian mentality.
Like the Great Depression, I believe the coronavirus will have a permanent impact on all American adults. This black swan event is dissimilar to something like the 9/11 terrorist attack, which devastated specific regions. True, Covid-19 is disproportionately affecting states like New York. However, all Americans are at least suffering from stress, isolation and supply shortages.
Therefore, once society returns to normal – or “normal-ish” – I don’t think we’ll quickly forget Covid-19’s painful lessons. I know I’m going to keep a basic stockpile of emergency goods when this crisis fades. And I’m 100% sure I’m not the only one thinking this way.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.
