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After an 8% retreat from its 52-week high, shares of 3M Company (NYSE: MMM) look enticing again.
Conservative growth investors will have a hard time finding a better stock to buy and own for the long haul than 3M. It is a great large-cap industrial technology company, and deserves a place in every investor’s portfolio.
Over the past 20 years the stock is up sixfold. Over the past decade, it’s up 165%. Over the past five years, since the bottom of the recession, it’s up 102%. And yet the stock still yields 2.5%, and pays out $4.10 in dividends each year.
Year-to-date 3M is off though. Shares have paused from their fall 2014 run, and are now down 3.6% since the New Year’s ball dropped in Times Square.
That decline was prompted by a first-quarter miss that saw earnings per share come in at $1.85, versus consensus of $1.92. Revenue of $7.57 billion represented a drop of 3.3% year-over-year, and came in $270 million below expectations.
The underlying numbers weren’t great. In fact, the contraction is exactly the opposite of what growth investors are looking for. But one needs to consider that over 60% of 3M’s business comes from foreign markets, and the impact of currency translations trimmed sales by 6.5%. That means on a constant-currency basis sales would have been up over 3.0%.
And on a per-share basis, foreign currency trimmed off $0.10 in earnings. For the full year, management expects a total negative impact of 6% to 7% on revenue and $0.35 to $0.40 per share (to a range of $7.80 to $8.10).
So why is 3M still attractive if it’s getting hammered by a strong dollar? Because when the dramatic changes in the dollar’s relative value have passed, 3M’s greatness will still persist.
I’m sure you have a roll of 3M tape somewhere in your house and a 3M Post-it notepad next to your phone. The company makes thousands of products, from adhesives and films to medical supplies. This company does it all, and it does it very well all around the world.
3M was issued its 100,000th patent almost exactly a year ago. You may never look at that roll of 3M tape in the same light again. Innovation is at this company’s core, which is why it’s been awarded so many patents since 1924.
But this business isn’t all about innovation. Conservative management also means reliable profits and cash flow.
Over the last decade – mind you, this includes the 2008-2009 recession – 3M has grown revenues at an average annual rate of 4.75% and EPS by 7.2%. It has also paid dividends for nearly a century. For a company that generated over $30 billion in sales last year, this is no small accomplishment.
Management is always considering selling slower growth businesses so it can maintain high-single-digit revenue growth over the long term. This is a good thing. Such discipline means the company is a cash cow, and is able to return money to shareholders in the form of stock buybacks and dividends. The current yield is 2.5%.
Part of the company’s resiliency is the fact that around 50% of sales come from consumables. This keeps customers coming back time and time again.
It is true that a picture is worth a thousand words, or in the case of the chart below, 20 years. Notice the steady uptrend? That’s the result of year-in, year-out performance. Sure, there have been some bumps in the road, like the current one, but 3M has gotten right back on track time and time again.
This isn’t a stock that’s likely to surge 10% overnight. But it’s equally unlikely to drop 10% overnight, either. It’s a true forever growth stock that every growth investor can own.
So make sure you do. Buy some now, and buy a little more every few months. Average in a little at a time, and I expect you’ll come to appreciate 3M’s greatness as much as I do.
Apple’s most closely guarded secret
On April 27, Apple blew away expectations yet again by beating Wall Street’s earnings estimates. Without a doubt, Apple is soaring higher than ever. Yet few analysts realize is that a little-known company is destined to soar right along with it. It’s Apple’s most closely guarded secret…one they would prefer you never know. Discover it right here.