Stock Market Ideas

#11 3M Company - N95 Masks, Tape, Glue, Bandages & 55,000 Other Products

July 06, 2020 Ted Vailas Episode 11
Stock Market Ideas
#11 3M Company - N95 Masks, Tape, Glue, Bandages & 55,000 Other Products
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Stock Market Ideas
#11 3M Company - N95 Masks, Tape, Glue, Bandages & 55,000 Other Products
Jul 06, 2020 Episode 11
Ted Vailas

In this episode I talk about the 3M Company and how it is a profitable and innovation driven company that is about far more than just N95 masks.  The long history of profits, R&D and for good financial management make this a company that will do well for many years to come.

Support the show (http://www.stockmarketideaspodcast.com)

Show Notes Transcript

In this episode I talk about the 3M Company and how it is a profitable and innovation driven company that is about far more than just N95 masks.  The long history of profits, R&D and for good financial management make this a company that will do well for many years to come.

Support the show (http://www.stockmarketideaspodcast.com)

Speaker 1:

Welcome to episode 11. Today, we are going to talk about 3m , ticker symbol, MMM on the New York stock exchange. Let's get into it.

Speaker 2:

Welcome to the stock market ideas podcast, where we discuss value investing and longterm investment ideas, make sure to subscribe and you'll get all of our most UpToDate episodes with investment ideas. You should be thinking about here's your host, Ted Vailas.

Speaker 1:

Thank you very much for joining me today on this episode of the stock market ideas podcast, I've been thinking about 3M for quite a while now, and you've probably heard a lot about it in the media recently. It has gained a lot of attention as one of the top manufacturers of the N95 masks used by medical professionals. And this certainly has been one of the top movers of this stock in terms of the amount of speculation that's been taking place, looking at the ramped up production of these masks and governments and companies all around the world, looking to buy a huge quantity of these masks. Now more recently, the coverage has almost gone in the other direction where financial media outlets and analysts are almost talking as though this company has been overbought and a trend is developing against this company, or to sell this stock just because there had been so much excitement to buy it during the initial parts of the pandemic around March and February, when it started gaining the most attention in the media for these masks, the reality is that 3m produces around 55,000 different products, and it is a huge conglomerate that sells a very wide variety of different products in many different fields. These include things like a variety of stationary equipment, a huge variety of health care equipment, different chemicals, and adhesives and abrasive products, home improvement, supplies, brands that include scotch tape, command strips, post it notes, and many different things. So the real strength in this company and what makes it a good company with a solid place within its marketplace and with the competitive advantage that's worth investing in is going to be completely unrelated to anything that happens short term and has a lot more to do with its innovation cycle. And the fact that this company focuses on very specific problems and how to solve them for people. So some key indicators to look at that tell us that this company is in a strong financial position, include a healthy return on invested capital above 15% with only about a 6% weighted average cost of capital. So that means overall, this company is generating higher returns than it costs the company to raise this capital. And this is an important indicator for any company. While this relationship between these indicators has been pretty stable over the past number of years, there has been a decline in the return invested capital over the past couple of years. That could be a result of some major expenses that it hasn't had to account for in past years. So while this company does have a long history of very positive net income and free cash flow , it has been taking on a higher and higher debt load over the past five years or so. And this is reflected in a relatively low cash to debt ratio of about 0.2. This isn't especially alarming, especially since we know that this company can generate positive investment return on the things that it decides to research and develop, but taking on more and more debt is a trend that we just don't want to see too much going into the future as liabilities are now above $21 billion. Overall, as I've indicated, this is a very profitable company with operating margins above 20% and net margins above 15%. A return on equity here of around 50% is an incredibly healthy figure. Even if this number comes down a little bit over the next couple of years, there is a strong uptrend over at least the past 20 years of this company growing its return on equity. Just a quick note here as well. This company does have a history of paying a dividend and its dividend yield right now is at about 3.7%. I don't put any particular weight on the decision to buy or sell based on the dividend, but it is important to note and to factor it in that you will be receiving a little bit of cash quarterly from this company. Now turning to look at valuation. This company is not particularly as undervalued as it was just a few months ago. At the end of March, for example, you could have bought it for around $117 per share. Now it's back to where it was roughly over the past year, but with the price to earnings ratio of around 18 and a forward PE under 20, this to me, looks like it could be a very fairly priced company, especially when you consider what you're getting. This business has years of history of being profitable and of maintaining market share with a lot of different products that don't see very much change in how they're used . That is, this is probably the kind of company that you can hold for many years and not have to worry about it, or think too much about it. If you own it. And one day it becomes overvalued. Maybe you think about selling at that point. So that's overall. My snapshot of 3m overall looks to be a very good and a very strong company, which to me is always the priority that is defined the high quality companies that I don't have to worry about. What's going to happen quarterly or on any short term basis with such a huge portfolio of products and patents and different industries that this company is involved in. 3m has a lot of hallmarks of a safe investment, but as always, it's important to do your own in depth research to come to that conclusion. Thank you again so much for listening in and we'll talk to you again. Bye for now.

Speaker 2:

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