3M is a value stock that is aligned with many of the market’s most disruptive sectors
3M Company (NYSE:MMM) delivered a double beat when it reported earnings on Apr. 26. That wasn’t enough to satisfy investors who were in a selling mood.
However, the stock is starting to rally. And MMM stock is beginning to look like a reasonable investment for those who are looking for quality stocks to buy on the dip.
A quick look at the company’s earnings show a nice trend. The company’s revenue and earnings in the first quarter beat analysts’ expectations. However, both numbers were lower from the same quarter in the prior year.
But a better comparison may be to go back to the first quarter of the company’s 2019 fiscal year. And in that regard, the company’s numbers were higher on both accounts.
I’m aware that statistics can say whatever you want so let me add some context to my opinion. The first quarter of 2021 was the beginning of the economic recovery. So it stands to reason that a company like 3M would see an influx of demand.
What’s more interesting to me is to look at the company’s year-over-year earnings and revenue for the last three years.
So why is MMM stock falling?
In two words: supply chain. Like virtually every company, 3M is being affected by supply chain constraints and will likely continue to be for the foreseeable future.
And chief executive officer (CEO) Mike Roman says that the company’s supply chain issues are likely to have an adverse impact on the company’s earnings for the remainder of the year.
Not surprisingly, analyst sentiment has turned bearish in the days following the earnings report. However, the company's first quarter numbers suggest that the company has been reasonably successful at passing along cost increases to its customers.
Aiding the disruptors
By now investors have heard a lot about disruptive technology. But when consumers hear that term, they may think of devices like the smartphone that you may be reading this article on.
And that’s a great example. However, in 2022, many of the companies that are disrupting the industry are in areas such as healthcare, artificial intelligence, and automation.
3M does business in each of these sectors and more. And that’s what I meant in my headline when I say that MMM stock looks bullish because of the company it keeps.
As these companies expand their business, they’ll be looking at products from suppliers like 3M to keep their supply chains moving. That’s a bullish trend for 2022.
What to do with 3M stock?
If you need a reason to buy MMM stock right now, all you need to look at is the dividend. 3M is a dividend king having increased its dividend in each of the last 65 years.
But the company also has a dividend yield that currently is over 4%. And when you consider that earnings are growing and are forecast to grow in each of the next five years, the dividend looks very sustainable.
I also consider the company’s price-to-earnings (P/E) ratio which is 15.44 as of this writing. It looks high compared to the sector average. However, compared to the company’s historical average it’s beginning to look attractive.
In the short term, that may mean that MMM stock may continue to be volatile as investors attempt to confirm that the stock has found a bottom.
But with the stock trading at the lower end of its 52-week range and below its pre-pandemic level, opportunistic investors should look for an opportunity to add shares.