With shares of 3M (NYSE:MMM) trading around $105, is MMM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for a Stock’s Movement
3M provides is a worldwide diversified technology company that has a presence in the industrial and transportation, health care, consumer and office, safety, security and protection services, display and graphics, and communications businesses. The conglomerate is able to provide a wide range of industrial products for the developed and developing world. As countries grow, look for 3M to capitalize on this growth as it is a leading provider of industrial products worldwide.
T = Technicals on the Stock Chart are Strong
3M’s long-term price chart shows the wonderful uptrend the stock has been a part of. Just recently, the stock has made new all-time highs, and it does not show any signs of slowing. Look for the pattern of higher highs and higher lows to remain in this stock. Price momentum has led 3M on a clear path to rising stock prices.
Using key simple moving averages, a price trend can be easily evaluated. The key simple moving averages used to evaluate a longer term trend are the 50-day, 100-day, and 200-day simple moving averages. What are these key averages saying about 3M’s price momentum? The stock is sitting pretty above its rising 50-day, 100-day, and 200-day moving averages. The stock is also above its rising 20-day simple moving average, an added bonus. So, the key averages are signaling a strong uptrend.
A simple way to gain perspective into investor sentiment is through the use of the options market. More specifically, taking a look at the implied volatility and implied volatility skew levels of 3M options may help determine if investors are bullish, neutral, or bearish. The implied volatility of 3M options is at 16.86 percent today which coincides with a 46th percentile over the last 30 trading days and 33rd percentile over the last 90 trading days. What does this mean? This means that investors or traders are buying a good amount of call and put options contracts, as compared to the last 30 and 90 trading days.
The implied volatility skew of March and April put options is flat while call option skew is at about average. Now, what does this mean? As of today, there is an average demand from call buyers or average demand by call sellers while there is a low demand by put buyers or high demand by call sellers, all neutral to bullish over the next two months. So, investors are buying a good amount of call and put option contracts and are leaning neutral to bullish over the next two months.
E = Earnings Are Mixed Quarter-Over-Quarter
Increasing earnings and revenue growth rates generally lead to a stock price. So ideally, investors would like to see constantly increasing earnings and revenue growth. What do the last four quarterly earnings and revenue growth figures for 3M look like? The last four quarterly earnings growth (Y-O-Y) rates have been: 5.19, 8.55, 3.75, and 6.71 percent while the last four revenue growth (Y-O-Y) rates have all been: 4.2, -0.45, -1.9, and 2.39 percent. The company has posted great earnings growth but mediocre revenue growth rates over the last four quarters.
How did investors take these growth rates? The last four quarterly earnings announcement reactions help gauge investor sentiment on 3M’s stock. The last four quarters have seen next trading session returns of -0.69, -4.26, 3.66, and 3.01 percent. Investors have had mixed feelings about the last four quarterly earnings reports.
E = Excellent Relative Performance Versus Peers and Sector
3M has been on fire lately, mainly because of its leading position as a supplier of industrial products, but how has the stock done relative to its peers and sector? Year-to-date, the stock is returning 10.2 percent while its competitors, Johnson & Johnson (NYSE:JNJ), General Electric (NYSE:GE), Siemens (NYSE:SI), and sector are returning 9.64, 10.59, -4.98, and 6.75 percent respectively. 3M had been one of the performance leaders of its industry, year-to-date.
Industrial development is at the root of an expanding world, so 3M is poised to see significant profits for years to come. The stock has been on fire lately and has just tagged new all-time highs. Earnings and revenue growth rates have been on par with expectations, but the stock has still managed to be a leader in its sector. Look for 3M to OUTPERFORM.
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