A big dullish company can still offer exciting returns if you're smart about how you play it.
That's what Real Money Columnist Paul Price argues in the case of a familiar provider of tape, post it notes and other supplies.
“The well-diversified, blue-chip company 3M is more conservative and predictable than most stocks out there,” Price wrote recently on Real Money. “The firm's long-term growth has been decent, if not spectacular. Continuous shareholders have been reasonably happy, though not ecstatic.”
But, he adds, “[t]hat doesn't mean you could not have done much better over the years simply by selling into strength and buying back when the shares were out of favor.”
Essentially, with 3M we have a stock that presents two profiles.
- First, this is a long-term growth investment. Based on the stock’s history, investors can buy and hold this asset for years, if not decades, and expect steady gains.
- Second, this is a stock with periodic fluctuations. Given enough time, 3M has historically grown steadily, but over shorter terms it has peaks and valleys.
As an investor, this gives 3M some unusual utility. It means that if you wait for the right pricing signals, you can buy this stock cheaply relative to its likely long-term value. That’s useful whether you’re looking for an investment that will last weeks or decades.
In the case of 3M, Price writes, fluctuations have usually been defined by the stock price relative to its earnings per share.
“From 2012 through 2021, 3M averaged about 19.2-times earnings accompanied by around 2.75% in current yield. The five previous "best entry points" all occurred with the shares fetching well-below typical multiples. Four of those five also offered better than average yields."
On the other hand, "all four of 3M's ‘should have sold’ moments reflected higher than typical price-to-earnings multiples. All but 2021's peak were paying historically sub-par yields.”
Price added that "as of Friday, April 8, MMM was offered for just 14.4-times this year's estimate. That represented a 25% discount to normal."
