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3M: Innovation and Consistency
05/11/2015 7:00 am EST
Conservative growth investors will have a hard time finding a better stock to buy and own for the long haul than this great large-cap industrial technology company, asserts Tyler Laundon, editor of Daily Profit.
3M Company (MMM) deserves a place in every investor's portfolio. Over the past 20 years, the stock is up six-fold. Over the past decade, it's up 165%. Over the past five years—since the bottom of the recession—it's up 102%.
The recent decline off its highs 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.
The underlying numbers weren't great. 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%.
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.
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.
Last year, 3M was issued its 100,000th patent. Innovation is at this company's core, which is why it's been awarded so many patents since 1924. In addition, 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.
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. It's a true forever stock that every growth investor can own.
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