Is This Stock A Buy As Biden Builds The National Healthcare Stockpile?
This time last year all the talk was doom and gloom and that we were going to see hospitals overflow with patients.
It got so bad that nurses and doctors in various cities across the United States were wearing trash bags to protect themselves from the virus.
Some even had to wear masks for so many straight hours they got scars from them on their faces.
Luckily, we got away from those panic stages relatively fast due to actions taken by then President Trump and governors around the nation to force production of these all-important personal protective equipment (PPE).
Without these many more doctors, nurses, and patients would have died.
Specifically, without the stock we’re looking at today – 3M (MMM) the maker or N95 protective masks and other PPE – many more would have died.
Back on April 5th current President Biden called a meeting at the White House to make sure companies including 3M continue building the national stockpile of this important equipment.
Because of that, today I answer – Is This Stock A Buy As Biden Build The National Stockpile?
3M (MMM) is a world leader in safety and industrial equipment, transportation, electronics, healthcare, and consumer goods.
Here’s a picture of some of its products used every day in business…
Most of its products you couldn’t name unless you worked in certain industries… At least until Covid hit last year and 3M’s N95 masks became famous for their high levels of protection.
The equipment – and other products – 3M makes is so important and valuable that last year during the worst economic situation many of us have seen our lifetimes… Issues that saw countless businesses close forever… 3M thrived.
It grew revenue, operating profits, and cash flow last year during the pandemic while many companies flailed.
In fact, it performed so well during this pandemic that its shares are up 72.3% from its 2020 low on March 23rd.
And with Biden wanting to continue the buildout of the national stockpile of PPE – its poised to continue doing well.
It’s always been an important company since its founding in 1902 as the Minnesota Mining and Manufacturing company… But its even more so now with Covid still lingering.
But this is all in the past…
Today, I want to help you figure out whether you should buy it to protect and grow your retirement portfolio… As it works to protect the US and the world.
It’s based in Saint Paul Minnesota. It has a $117 billion market cap. And it pays you a 2.92% dividend. Which is reason #1 to consider buying its stock.
3M’s 2.92% Dividend
Over the last decade 3M’s paid out a total of $40.84 per share in dividends.
At today’s share count of 583 million shares that’s equal to $23.81 billion paid out to shareholders in that time.
It also grew its dividend 168% from $2.20 per share in 2011 to $5.89 per share now.
These dividend payments will help you in normal times earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
These regular payments will help you earn more money for your retirement. And the solid, stable, and growing dividends will help in any kind of prolonged economic issues like we’re dealing with today.
It can do this because it earns massive profits. Which is reason #2 to consider buying 3M for your retirement portfolio.
3M Earns Massive Profits
Over the last decade it earned an average operating income margin of 21.7% per year.
I look for anything above 10% so this is fantastic.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 15.7% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above. If a company surpasses both thresholds it makes it a great operating business that is safe and ultra-valuable.
3M farsurpasses both thresholds which means it’s a world class business operation.
Another thing these huge profits allow is lowish debt levels.
3M Has Low Debt Levels
As of this writing 3M has $5.14 billion in cash compared to $19.1 billion in debt.
As a percentage of its balance sheet total liabilities make up 70.8%.
Debt makes up only 15.3% of its market cap.
And its debt-to-equity ratio is 1.27. For example, I look for anything below 1 on a consistent basis here.
While its debt-to-equity ratio is slightly above what I look for, it’s not a huge deal here because of how consistently great its profits and cash flows are.
Because when a company produces consistently large profits and cash flows this means the company can sustain more debt – if it wants to.
And its debt levels are still low compared to its debt. Especially when you factor in the profits and cash flows.
This gives you an enormous margin of safety when you consider buying 3M to protect your retirement portfolio.
So far, MMM looks like a great stock… But what about its valuation? Is it cheap enough to buy?
3M IS NOT Cheap…
With the markets at or near all-time highs you might expect a great stock like 3M to be selling at an enormous valuation.
Its not… But its still not cheap enough to buy.
As of this writing its P/E is 20.8.
Its P/CF is 13.8.
Its forward P/E is 20.9.
And its enterprise value to operating income – EV/EBIT is 17.3.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
These metrics combined show that 3M is overvalued right now when considering all the metrics together.
And this means owning its stock does not give you a large margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With 3M being overvalued right now, its stock does not give you a large margin of safety.
If you’re looking for a solid, safe, dividend paying, stable, inflation fighting, and enormously profitable investment to buy to earn high and safe returns for your portfolio – Avoid 3M until its cheaper.
And instead consider investing in one of the stocks below to protect your retirement during these uncertain times.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.
P.S. Breaking Poll – Did Trump Save Us And The Economy When Covid First Hit Last Year? Vote Here