3M (MMM) is one of those unique companies that has a large portion of its revenue coming from its own research and development. It developed a profitable system for creating, producing and taking a product to market for a profit. This makes the company a reliable stalwart for an investor's portfolio. Let's take a look at how the company is doing on a global scale as it develops its emerging market business and also how it plans to expand its research and development product portfolio.
Where the Company Should Focus Growth
If 3M is going to plan on a global strategy to increase sales and profits, it's going to need to focus on specific areas like the Asian-Pacific rim and Latin America in the years ahead. These regions are growing fast but only account for 20% of its consumer and healthcare segment sales.
As these global regions grow, larger infrastructures and manufacturing centers will be built. This will lead to the demand for things from 3M like: tapes, adhesives, highway reflective material and signs, roofing materials, copper related material and other products to support infrastructure.
Other segments of the company (industrial, safety, energy, and electronic) have been able to grow in these regions because of this. The Asian-Pacific rim and Latin America account for about 40% of sales in these segments for the company.
I have mentioned the weaker segments: consumer spending and healthcare segments. This is understandable because these two segments tend to be focused around disposable income. The developed countries are the ones that have this kind of money and thus most of the business went there. The emerging markets consisted of about 20% of its total.
Even though those two segments were the weakest of the lot, the opportunity for growth is there. As these markets grow, so will the standard of living and disposable income. This is good for 3M. It needs to grow the sales base for consumer spending and healthcare. The company has an array of products that people will buy. Overall emerging markets accounted for 34% of 3M's sales and with the development of these regions and the increase in disposable income, the company has projected that by 2017, emerging markets could amount to almost 45% of sales.
What Makes It Work?
When one looks at 3M, it is important to understand that the driving force behind this company has always been its R&D department. Over the next five years, the company will increase its R&D spending to attempt to create new and better products to stay at the forefront of their industry. Whether it's testing solar panels, the popular 3M protective film, or even its censoring technology, the company has always profited from being at the forefront of introducing new and progressive technology.
How important is this concept to the company?
Here is a little bit of information you may not have known as an investor. The company has an internal measuring system it calls "NPVI" which stands for: New Product Vitality Index. This is the percentage of revenue that the company generates from products that didn't exist five years earlier. This number was at 25% in 2008 and today it's at 34%.
$10 billion worth of "NPVI" products being sold today did not exist five years ago! With the planned increase in R&D spending, 3M is looking at increasing that NPVI number to 40% by 2017.
Investors looking for a dependable long-term investment can't get any better than this! A company that researches and designs its own products and sells them at this level is bound to be a good long-term stalwart for any investment portfolio.
Because of the global economy, 3M struggles just like every other corporation in the industrial sector would. The best economy on the globe right now is the U.S. market and that is struggling along at a snail's pace. But 3M seems to do it right! The company is establishing itself in different parts of the globe and continues to develop products to sell instead of overpaying for acquisitions like some large corporations have.
From a short-term perspective, it looks like 3M may be in the beginning of a consolidation pattern or a neutral trading channel. These are premature observations, but I believe they're important. The RSI indicator continues to remain in the bullish area showing strength still exists. The MACD indicator does the same thing which supports what the RSI is telling us. Even though it is consolidating, the general view of the pattern is still strongly bullish. The Bollinger bands also are revealing the beginning stages of sideways movement. All this is telling us that the stock appears to be consolidating. This could happen before a move up or could be resting before it starts to drop. But I tend to believe it may move up a little bit more.
I believe the company will continue to focus on growing its emerging market industry with certain segments doing better than others. When the global economy picks up again, I believe 3M is in a great position not only with its top productive industries, but also with the "disposable income" sectors that are not doing as well. When the economies pick up and middle-class income grows for the emerging markets, this will help the company tremendously. Along with its consistent tradition of R&D spending and development, the company will continue to be a good foundation for any portfolio.