August 10, 1996
Minnesota, Mining and Manufacturing (NYSE: MMM) (110 shares)
TYPE: Foolish Four Dow Dividend stock
Phone: (612) 733-3564
Closing prices, August 9th, 1996: Bid $65 5/8, Ask $65 3/4
Trailing 12-month revenues: $13.6 billion
Trailing 12-month EPS: $3.25
Last quarter reported: June 1996 (FY: Dec)
Next quarter report date: October 27, 1996
Consensus EPS estimates for quarter: $0.90e vs. $0.84
Dividend yield: 2.99%
---->Trade: Buying 110 shares, August 12th-16th
Minnesota, Mining and Manufacturing, better known to the world as 3M, is one of those big Dow companies that you want to own because it's got so much stuff.
3M does it all, from billboards to blasting caps, sterile adhesive bandages to Scotch-Gard. The company makes products for industry, consumers, offices, health facilities, and a whole lot more. This is the company that pioneered stuff like sandpaper, masking tape, and transparent tape, and developed the disposable adhesive back surgical drapes I used more than once in my jaunt as a surgical technologist. Plus, everybody has heard the story about how Post-It (tm) notes were developed, right? Frankly, few companies cause a Fool to wonder how modern society would have existed without them. I mean, call me Foolish but it's my frank opinion that we would have still enjoyed modern civilization without Coca-Cola or McDonald's. But transparent tape?! We've asked our crack staff to investigate whether or not our newest addition to the Fool Portfolio might not possibly have some patent on the wheel -- we're quite sure someone there developed it.
It's hard to know where to begin. This is a technology company of the classic sort. We are not talking computers here, but rather constant innovations in the laboratory turned into consumer products. 3M has made a science of turning advances in research and development into viable consumer products. The only group with as much claim to innovative fame is Lucent's vaunted Bell Labs.
The company's core mission is "focusing on technologies and products with a clear competitive advantage and large growth potential." The company appears agnostic about what market they penetrate, straddling so many sectors that the only analysts who follow them are those in the conglomerate and diversified operations category. Abrasives, sticky stuff, clear film, tactile surfaces, lightweight materials, and permeable fabrics are among its specialties. Grab a copy of the company's annual report (the phone number is included above, as is the case in all our Fool Portfolio reports). That's probably the best way to make some overall sense of the company and its three sectors: Industrial and Consumer, Life Sciences, and International Operations.
Ultimately, 3M is in the idea business, and allows employees to use their creativity for the good of the company, sharing in the upside potential. For instance, 3M lets all of its scientists spend 15% of their time pursuing their own ideas. The company's Genesis program allows employees the time and money to conduct independent research and to test the commercial potential of some new technology.
Above, I had occasion to mention the story of Post-It notes; let me tell it in detail now. The apocryphal legend has it that a scientist at 3M trying to develop a new kind of glue ended up with this tacky stuff that would only make something as light as a sheet of paper stick to it. Not at all what he had intended, the scientist almost threw the stuff away and went back to the drawing board. But he was suddenly dumbstruck with inspiration. Pasting some of the viscous substance on the back of a piece of paper, he applied it to a surface and then removed it, noting that the note stuck yet no residue was left behind from the glue. He took it to his supervisors at 3M. Within a few years millions of us were sticking small yellow squares all over our desks. This story typifies the way that this company operates.
RECENT HISTORY AND FUTURE THOUGHTS
Ah, but all has not been champagne and cream for 3M shareholders. The company has had a tough couple of years as revenue growth has slowed to the single digits. Minny Mining, much like General Electric, is a de facto proxy for the economy: so big is the company that it really cannot grow all that much faster than the economy at large. And the share price has been indicative of that slow growth. After an uninteresting two years (1994-1995) featuring share prices in the $50s, MMM popped up into the $60s last November and has looked strong since. That's nice to see in the short term, but long term shareholders have seen their holding unable to keep pace with the market: the shares are up an annualized average of 7.0% over the past three years, versus the S&P 500's 11.7%.
The real big news is the restructuring that has ended with the July spinoff of Imation (NYSE:IMN), 3M's old data storage and imaging business. Unable to generate the returns on capital that it wanted in those highly competitive businesses, the company jettisoned them. The benefits to shareholders and the overall business are already evident, and 3M two weeks ago posted the highest quarterly results for net income ($381 million) and earnings per share ($0.91) in the company's history, on sales of $3.5 billion.
Of course, the reason we're tossing our belled cap in this circus's ring is because of our Foolish Four strategy, in which we buy and hold low-priced stocks among the Dow Jones industrials' highest-yielding group. With a yield of 3.0%, 3M has been in and out of the Foolish Four carnival for the past couple of years. We hope and expect that this latest act, the first-ever entrance of these shares into the Fool Portfolio, will prove anything but a sideshow.
--Randy Befumo, Fool HQ