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3M Stock Has Growing Problems

Travis Hoium
April 26, 2013

When you make over 50,000 products, it's a challenge keeping up with those products and making investments in new ones. This is the challenge 3M (NYSE: MMM) faces as it manages five huge businesses in a global market.

In the fourth quarter, 3M gave investors a little hope that growth was picking up, with 4.3% organic growth. But that hope faded a little yesterday, when first quarter organic growth came in at just 2.1%, and overall growth was just 2%. Currency translation was a drag on results, which it will be all year, but the fundamental problem is a lack of growth.

Growing problems for 3M stock
First quarter net income barely budged higher to $1.13 billion, or $1.61 per share and, with an operating margin of 21.6%, there's little margin upside given the competitive business environment. That means that profits will be stuck in a rut without growth.

Without growth, 3M becomes a value/dividend stock, and it's not priced right to be that. The company's P/E ratio is 16.5, and its dividend is 2.4%, not even close to the most attractive companies on the market. Microsoft, Intel, and Apple are all giant companies with better values right now.



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