3M Is A Good Buy-And-Hold Candidate

| About: 3M Company (MMM)

3M (MMM) saw 11% revenue growth in 2011, with double-digit revenue growth in Industrial and Transportation, Safety, Security and Protection Services and Health Care segments. All segments of the company enjoyed operating margins at or above 20%. I believe that the company's successes will continue as long as the company continues to be innovative.

Last year, the company's revenue was affected by the earthquake and tsunami in Japan as well as the flood in Thailand. This is because a lot of 3M's clients have factories or suppliers in these countries, and when their productions were disrupted, they ended up ordering less of 3M's products. Despite this incident, the company's revenues were still at an all time high at 2011.

In the last few years, 3M has been investing heavily in R&D in order to diversify its existing portfolio with new products, and it's been paying off really well for the company. Last year, 32% of 3M's revenues came from the products that were launched in the recent years. This tells a lot about a company's innovation rate and future growth prospects.

In comparison, only 7 years ago, the newly launched products only made up of 5% of the company's total revenues. In a survey done by Booz and Co, 3M was the third most innovative company in the world, coming after Google (GOOG) and Apple (AAPL). This is great news as the company was on its way to losing its competitive edge just a few years ago. The recent culture change has been very successful at 3M.

The company competes with thousands of local companies all over the world. In order to be able to compete with these companies, 3M chooses to produce things in the same locality it markets them. The company hires locals to produce and sell products to other locals in most markets.

This has been working out greatly for 3M as people are more likely to buy products and services from their own local men and women. This also reduces transportation costs for the products which can be very high as energy prices have been near all-time high recently.

One of the main and most promising product classes of 3M is abrasives. The company has been producing abrasives for over a century. The market for abrasives is $14 billion and this market is currently in a growth mode in all continents in the world. In 2011, the company acquired many small companies that specialize in abrasives.

It also launched new products and increased its focus on higher-margin products. As a result, the company's abrasives business resulted in 8% revenue growth in 2011. Super-abrasives, bonded abrasives and products that focus on hard-to-grind surfaces provide exciting growth opportunities for the company.

In 2011, one of the biggest challenges for 3M was the reduced consumer demand for electronics, with the exception of smart phones and tablets. This was particularly evident in Europe and North America, where many consumers feared a recession. In 2012, a recession is already happening in Europe; however, it's not likely to spread to the USA. I believe that the level of activity in the consumer electronics will come back in US this year and Europe next year, helping the company's revenues.

2011 was a great year for many companies in the automobile industry, particularly for North American and European companies, such as Ford (F), GM (GM), Volkswagen (OTCPK:VLKAY) and BMW (BAMXY.PK). Similarly, 2012 is expected to be a very strong year for the industry as well. I believe that 3M will benefit greatly from this industry's increased business activities, as 3M is one of the main suppliers for this particular industry.


In the last decade, the company's stock share price increased by 43%, whereas its revenues increased by 86%, its total assets increased by 111%, its EPS increased by 179% and its free cash flow increased by 56%. During this time, the company's P/E ratio fell by 48%. Currently 3M enjoys a P/E ratio of 14.74. The company has been raising its dividend rate for more than 25 years in a row, and its current dividend rate is 2.69%. I believe that 3M currently offers an attractive valuation for long term investors looking for a conservative play.

Disclosure: I am long MMM.