When I see a juggernaut of a company barely above their pre-pandemic lows, I take notice. When I see a 10% drop in a single day on news that is not timed with an earnings announcement, I take notice. The market loves to overreact – in both directions. Sometimes the overreaction is such that it makes sense to take action.
Formerly known as the Minnesota Mining and Manufacturing Company, 3M Company [MMM] joins the portfolio this Monday.
3M Company
Ordinarily I provide the Yahoo! Finance or TD Ameritrade profile for my pick of the week in the space that follows. This week, however, I found the profiles to be rather uninteresting. The truth is 3M’s influence on our lives, regardless of where you live in the world, is ubiquitous and inconspicuous. I thought perhaps this brief history from 3M’s own website would do a better job of enticing you into becoming a part owner for the rest of your life.
From 3M’s official website:
When 3M began in 1902, our five founders had a simple goal: to mine for corundum, a mineral ideal for making sandpaper and grinding wheels. Turns out, what they thought was corundum was really another low-grade mineral called anorthosite.
Discovering the poor-quality mineral could have caused an early end to our fledgling company, but our founders persisted. Why? Because something more important was born that first year: the spirit of innovation and collaboration that forms the foundation of 3M today. So instead of calling it quits, we turned to different materials, applied them to other products, gained the trust of important investors and built up sales little by little.
Scientific, technical and marketing innovations produced success upon success over the years, eventually making 3M a constant name on the Fortune 500 list. Today, more than 60,000 3M products are used in homes, businesses, schools, hospitals and other industries. One third of our sales come from products invented within the past five years, thanks to innovations from the thousands of researchers and scientists we employ around the world.
With corporate operations in 70 countries and sales in 200, we are committed to creating the technology and products that advance every company, enhance every home and improve every life.
The Details
Data as of 2022-09-10
| Name | 3M Company |
| Ticker | MMM |
| Website | Investor Relations |
| Sector | Industrials |
| Dividend Streak | 64 years |
| Last Price | $123.10 |
| Div Amt (quarterly) | $1.49 |
| Ann Dividend | $5.96 |
| Last Ann Div Inc | 0.7% |
| Dividend Yield | 4.8% |
| Payout Ratio (ttm) | 60.0% |
| Beta (5-yr, mon) | 0.99 |
| P/E Ratio (ttm) | 12.45 |
| Margin of Safety | 52.6% |
3M’s 10-year average P/E Ratio is 19. The current P/E Ratio of 12.45 is the lowest in 10 years and even lower than the historical average of the S&P 500. The current yield of 4.8% is rare for 3M, only obtainable if you bought at the low of the great recession or at the bottom of the pandemic’s impact on the market. Do I even need to mention that they’ve paid a dividend for over 100 years in a row and have raised it 64 years in a row? So why is MMM cheap right now?
The Litigation
Nearly 300,000 former U.S. Military service members have filed lawsuits against 3M. These individuals claim to have suffered hearing loss and tinnitus from the use of earplugs manufactured by Aearo Technologies, a 3M company. The combat earplugs are said to have a stem that is too short, preventing soldiers from inserting the plugs deep enough to attain full hearing protection. The lawsuits began in 2018, however, the news that drove down 3M’s share price 10% on August 26th was a judge’s denial of Aearo Technologies’ request for a preliminary injunction to ongoing litigation. What does this mean? It means that 3M will not be protected by Aearo’s bankruptcy. Here is what 3M had to say about that court decision:
Aearo Technologies and 3M disagree with the ruling and Aearo intends to appeal the decision. Aearo will continue in the chapter 11 proceedings, which it believes will offer a more efficient, equitable and expeditious pathway to resolution of these matters for all parties. 3M also will continue to vigorously defend its position in the multi-district litigation and in its appeals in that litigation.
Apparently, when there are thousands of individual lawsuits, the legal system implements multidistrict litigation and combines all the cases. From those, they draw a random sample (called bellwether trials) in order to gauge how they might play out in the aggregate. I guess, both sides can gain a better understanding of whether they’re better off going to trial or settling.
Of the 19 bellwether trials, 3M only won six. They had to shell out $300,000,000 in total over the other verdicts. Don’t do the math. Trust me, if that pace of monetary punishment were to continue for the remainder of cases, 3M would be obliterated.
Outlook
No one really knows how this class action suit will play out. It will likely take years before there is a determination. Worst case scenario will involve a settlement in the billions. It wouldn’t be a one-time hit, but rather payments made by 3M over a series of years, maybe decades. Let’s simmer down now and put all this into perspective: 3M will make $5 billion in profit this year. The final determination could very well be expensive, punitive, retaliatory, unreasonable. But 3M can handle it.
Some clown is going to sell me 8 shares on Monday.