Three Cheers for 3M!
3M (MMM) shares have pulled back from their all-time high of $95.85 per share in early October of last year to a current price in the upper sixties. As a result of this retrenchment, Ockham rates the venerable Dow Jones Industrial Average (DJIA) component as a buy. With a dividend yield of 2.9% and a strong history of increasing its dividend, this large, well established company is impeccably diversified both across business lines and internationally. This is the type of stock to own in the manic, seemingly-unhinged environment we now find ourselves in.
Formerly Minnesota Mining and Manufacturing, 3M was founded in 1902 in St. Paul. It sells more than 50,000 products in 60 countries and has in its stable, some of the world’s most recognizable brands, including Scotch Tape and Post It sticky notes. The company has six main business units: health care, industrial and transportation, display and graphics, consumer and office, electro and communications and safety, security and protection.
With a Beta of .90, 3M shares are moderately less volatile than the average stock, which should appeal to “gun shy” investors who are concerned about the current market’s wild price fluctuations. Using Ockham’s valuation methodology, 3M currently trades at Price-to-Sales ratio of 1.87x. Looking back over the past ten years, the Price-to-Sales range for the stock is 2.33x – 3.10x. Thus the stock is now trading at a Price-to-Sales multiple 30+% below its historic average for this metric—which is typically a good time to buy the stock.
Looking at Price-to-Cash Flow, the historic range for the shares has been 11.92x – 15.91x. It currently trades at a Price-to-Cash Flow of 9.80x—again potentially a very compelling entry point for patient, value-oriented investors looking to acquire MMM shares.
3M is the type of company that should do well in any economic environment. Furthermore, at current price levels, MMM shares are cheap enough that patient investors should be reasonably comfortable purchasing the company. The company has a diverse stable of products and has sales all over the globe, so it is not just dependent on the U.S. economy. While it represents a market segment (conglomerates) that is somewhat mundane compare to other more sexy sectors, mundane is looking pretty compelling right now. This is the kind of stock that will not keep you up at night when in your portfolio, despite what economic maelstroms might be howling around your door.
Ockham Research Staff @ September 16, 2008
