I'm usually a small-cap guy. I like to invest in companies that generate shrugs and blank stares when mentioned in public. Why shouldn't I? There are plenty of statistics that suggest smaller companies outperform larger companies, and there's a certain undeniable appeal to feeling like you've discovered something first.
Yet I also like United Technologies (NYSE: UTX) and AIG (NYSE: AIG) and own behemoths like 3M (NYSE: MMM) and Johnson & Johnson (NYSE: JNJ). Like Willie Sutton, I want to go where the money is.
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pick 3M may not have blown the doors off with its third-quarter results, but I think they were good nevertheless. Sales rose about 7% in local currency, and organic volume grew close to 5%. Better still, margins improved again, and net income and earnings per share both increased at double-digit rates.
From a revenue perspective, the industrial business was the growth leader this quarter at 12%, though that was pumped up by the inclusion of the CUNO filtration business. Both the display and graphics and safety businesses grew nearly 8%, and every unit showed top-line growth. Likewise, every unit showed a net operating profit and profit growth, with electro/communications leading the way.
Profits are all well and good, but that's only part of the story. Cash flow continues to expand, and the company upped its stock repurchase authorization by $300 million. Looking at 3M's balance sheet, I'm tempted to make a rare observation: This company might actually need more debt.
Debt isn't always a bad thing. It has certain tax advantages, and so long as the company can generate a positive net return on that capital (and not weigh themselves down with interest payments), it can be a good thing. I'm not saying that 3M should just float some bonds just because it can, but I do believe it has capacity to take on debt if it can find a growth vehicle for that cash.
I don't expect 3M shares to reward me with breathtaking stock performance in the short run, but I do think this company is set up to outperform for the next few years. Better still, it's a company with staying power. I don't really foresee any dire economic problems, but it's good to have a few stocks in the portfolio that are near-guaranteed survivors.
Industrial-strength Foolishness:
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Fool contributor Stephen Simpson owns shares of 3M and Johnson & Johnson, but holds no financial position in any other companies mentioned. The Fool has a disclosure policy.
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