Why Did 3M Fall in 2011?

It's hard to find a more diversified company than 3M (NYSE: MMM  ) . About two-thirds of its $29 billion in trailing sales comes from abroad, and half of that from emerging markets. 3M has six reportable business segments, and though the industrial and transportation slice is a bit bigger, all of them are in the same ballpark in terms of sales and profits. This stock is basically an index fund unto itself.

But this one-stock fund trailed the Dow Jones Industrial Index (INDEX: ^DJI  ) by a fairly considerable margin in 2011, falling about 5% while the Dow gained 6%. What's up with that spread? Let's have a look at the year 3M had.

3M by the numbers

Year-to-Date Stock Return (5.3%), or (2.9%) with reinvested dividends
Dividend Yield 2.7%
Trailing P/E Ratio 14
1-Year Revenue Growth (TTM) 12.1%
Market Cap $57.5 billion
CAPS Rating (out of 5) *****

Sources: S&P Capital IQ, Yahoo! Finance, and Motley Fool CAPS.

That's not the whole story
These figures paint the picture of a typical, mature conglomerate. The rock-solid dividend payouts are comparable to those of Honeywell (NYSE: HON  ) or United Technologies (NYSE: UTX  ) , both of which are similar in size to 3M. But the Minnesotans hold the CAPS edge with a perfect five-star score.

That precious fifth star has been solid since 3M shares got cheap over the summer. A 97% approval rating from Foolish investors helped, but CAPS scores also depend on valuation metrics.

The funny thing is, 3M didn't do anything wrong to deserve lower prices. The company did report earnings right around the worst of the freefall, but it met analyst estimates and raised guidance on that occasion.

Investors have been treating 3M and other industrial stocks as proxies for the global economy amid the European debt crisis. That's fair enough on one level, given 3M's global and multi-industry reach, but then you're ignoring the fundamental strength of a brilliantly managed company. There's no doubt in my mind that 3M will bounce back.

Not all Fools agree, of course -- that's why they call us Motley. Fellow Fool and former 3M engineer Travis Hoium, for one, worries that the innovative spark may be gone from the company. To that point, I'd note that 32% of 3M's sales in 2011 came from products that were introduced in the past five years, and management aims for new inventions to provide 40% of revenues in the long term. CFO Dave Meline says 3M's business model is based on innovation, and I believe in that.

That's why 3M is a stock you could happily hold for the next 10 years or more, and also why I just placed a thumbs-up CAPScall on the stock. This stock is priced for absolute disaster, but 3M did nothing wrong in 2011.

Fool contributor Anders Bylund holds no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in 3M. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 31, 2011, at 6:53 PM, ksk3888 wrote:

    Rightly said i think..

  • Report this Comment On January 01, 2012, at 1:10 PM, drchemy wrote:

    3M's long term prospects look good. Unfortunately for both 2011 and 2012 the deterioration of their LCD film sales (along with the sale price of the film) is going to be a significant hit to their bottom line. Year over year profits were flat for the company in the 3rd quarter because of the fall in sales of the product. I think the hit in 2012 is going to be half as much but it is still going to hurt 3M's profit growth significantly.

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