How 3M Crushed the Dow in 2013

The Dow Jones Industrials (DJINDICES: ^DJI  ) have had a great 2013, with the average up 22% so far this year. But 3M (NYSE: MMM  ) has almost doubled that performance, with a 42% gain that has demonstrated the ability of the innovation-leading conglomerate to press forward with solid advances in its core businesses.

3M has a long history of creating new products with high demand, and its scope is a lot wider than many investors realize. With products ranging from medical supplies to components for electronics and filtration systems, 3M goes a lot further than just letting you stick a yellow piece of paper on the side of a document. Even in a bull market, what made 3M do so much better than its Dow peers? Let's take a closer look at what moved shares of 3M in 2013.


3M helped sponsor a new "science on wheels" exhibit in Austin, Texas. (Photo credit: 3M)

Stats on 3M

Current Trailing P/E

20

1-year revenue growth

3.7%

1-year earnings growth

3.2%

Dividend yield

2%

Source: S&P Capital IQ.

MMM Total Return Price Chart

3M Total Return Price data by YCharts.

Why has 3M done so well in 2013?
3M's gains have been relatively steady throughout the year, without any major downdrafts punctuating the stock's general uptrend. The stock now trades at an all-time high, with 3M playing an important role in lifting the entire Dow to new records as well.

Toward the beginning of the year, 3M was still trying to answer questions about how it would reawaken its full growth potential. With CEO Inge Thulin having served less than a year in the top executive position, 3M needed to demonstrate its ability to come up with new innovations. At the same time, the key acquisition of Ceradyne complemented many of 3M's existing product lines while offering new opportunities to diversify into promising new industries.

Yet although 3M's conservative approach served the company well in supporting the stock price, it still raised concerns about its competitive position. Rival conglomerate General Electric (NYSE: GE  ) has taken a much more aggressive approach in returning to its industrial roots, finding new opportunities in the energy and aerospace areas and riding fiercely positive macroeconomic trends to their heights. Not only has General Electric doubled down on existing business segments like its aircraft engine division, it has also made new forays into areas such as mining equipment and oil-field services.

Still, 3M has put in place what looks like a viable long-term strategy. With plans to spend more on research and development, 3M has the ability to make headway in a number of areas. Although its industrial segment is its largest for revenue, areas like health care, safety products, and electronics and energy all play important roles in 3M's overall business. In particular, 3M's renewable energy initiatives have a lot of growth potential, with the rebound in the solar industry in recent months presenting a chance for the company to expand its expertise in the area. Health care also represents a possible growth area for 3M, especially given the upheaval in the industry resulting from reform efforts.

With 3M stock up so strongly in 2013, investors are already taking for granted that the company will be able to execute on its efforts to boost growth beyond its current anemic pace. With valuations reflecting their optimism, shareholders could end up being disappointed if 3M fails to live up to its full potential.

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  • Report this Comment On November 19, 2013, at 1:21 PM, ARH213 wrote:

    To compare 3M to GE is comparing apples to oranges. Sure, they both are large conglomerates, but there the comparison ends. GE 's business is in large piece parts while 3M's business is "make it by the mile and sell it by the inch". I am sure GE is a large customer of the type of product 3M specializes in. Time will tell whether 3M is able to utilize Ceredyne's expertise. Most ceramic products do not fit the 3M technology expertise of make it by the mile and sell it by the inch. Ceredyne's "piece parts" model would have been a closer fit to what GE does. 3M has had piece parts products in the past (American Lava) and they finally sold that part of their business. They also had a business selling ceramic wafers (both made and sold as piece parts) to computer hard drive companies and they ended that attempt about 12 years ago. Even a company with products in very diverse markets (transportation, communications, medical, office supplies, building materials) like 3M has limited technology capabilities that it is able to profitably exploit. I was an R&D engineer at 3M for 30 years with ceramics expertise. I know how difficult a fit such materials were at 3M. Roofing granules, ceramic fibers and abrasive grit were products that all fit the make it in bulk and sell it small increments needed for 3M success, while large piece parts failed not for bad technology but because they did not fit the total 3M cultural model for business success.

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