3M
I've been digging around for ideas, and although I still treat any pullback in the energy sector as a buying opportunity, I've been trying to look in other areas with a good tailwind.
I still like GE for its energy components as well as its diversified portfolio of other industrial products, but it seems their finance division (which has historically contributed a good portion of its profits) has been a bit of a mystery especially in view of the current credit turmoil. They haven't announced any big write downs a la_______(insert any investment bank here), but this division remains a black box for GE.
Although in different areas, 3M has had a similarly long history as an industrial manufacturer of literally thousands of products. What initially got my attention was their research into new types of lithium ion batteries. For me this was the tie into energy that got me interested. The future of transport will revolve around more electric vehicles powered by batteries and some form of lithium battery will likely be at its core. I tried to investigate 3M's research into this area further but the amount of research this company does and the number of innovations it has achieved in small products (but large volumes) is quite amazing.
This company's ubiquitous Post-It note is one of thousands of small innovations if even you could call it that - but they've managed to leverage this small no-big deal product literally millions and millions of times over. At its website you see many more products that are marginally more useful than a post-it note but they sell lots of 'em!
The valuation currently compared to its historical is quite favourable. (P/E and dividend yield currently lower than historical 5 year average) It's revenue is like other multinational US companies and its sales to the emerging markets is growing rapidly. It doesn't have a good direct comparison except for maybe Tyco or GE. It recently sold its pharmaceutical division so it doesn't have the FDA/drug approval related volatility. Its product diversification defies any slowdown in any one sector.
So in sum its a boring industrial company with its roots as old as the American Innovative spirit. They invent things and then sell as many as they can!
posted by Des @ 3/21/2008 10:33:00 PM
4 Comments:
This blog I read sums it up for me:
http://dividendgrowth.blogspot.com/2008/03/3m-dividend-analysis.html
Personally I am not too crazy about investing in large mature companies. But from what you posted, 3M sounds like a sound investment.
Two questions:
- Isn't from tax perspective preferred to invest in companies with capital growth potential or "Canadian" dividend companies? After all it is a non-registered account.
- Is it a good time to get in?! Do you believe that we are close to the bottom? I know the current price seems appealing, but shouldn't we wait a bit longer?
Yes it is a large mature company but don't underestimate the likes of GE and MMM especially in times like these when the overall economy seems to be contracting. I read through some of 3m reports and they firmly expect to grow organic earnings and revenue by 10% this year 2008. I suspect 10% growth would beat most indexes this year.
With respect to the dividend you're absolutely right that as foreign investors, we'd take a clawback to the posted 2.5% yield currently. I was using the yield as a measure of historical reference of value, and not necessarily as a huge contributor to total return.
In terms of the bottom - who knows? I've been trying to dig around for companies that would be less affected by a general downturn. If I had to choose between GE and 3M right now, I would still choose GE but I was trying to generate some discussion about other investable ideas. Let's keep digging!
I'm not too crazy about 3M, don't see anything special from a risk adjusted return perspective.
Re: GE, I would be "all in" if it were not for the financial wing. But it does seem to have recovered nicely in the past month, so maybe the market is voting that GE will avoid the credit crunch.
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