What happened

Shares of 3M (NYSE:MMM) lost 7.41% in 2019, according to data provided by S&P Global Market Intelligence, underperforming the S&P 500 by more than 35 percentage points. Things first went off the rails in late April, when the company missed on earnings and announced a very un-3M-like acquisition, and the company did little as the year went on to quell investor concerns.

MMM Chart

3M vs. S&P 500 data by YCharts

So what

3M shares plunged 13% on April 25, its biggest one-day loss since the 1987 market crash, after reporting quarterly revenue that was down 5% year over year and an 11% drop in adjusted earnings per share. CEO Mike Roman at the time called the quarter "a disappointing start to the year," and he pledged to cut expenses, boost productivity, and increase cash flow.

The company weeks later announced the largest acquisition in its 117-year history, the purchase of wound care specialist Acelity for $6.7 billion. Large purchases are always fraught with risk, especially when the buyer is also in the process of restructuring. But in 3M's case the deal also sends an alarming symbolic message, raising fears that a company renowned for its internal R&D operations feels forced to look elsewhere for growth.

A man places PostIt Notes on a white board.

Image source: Getty Images.

3M did little to restore investor confidence as the year went on, matching analyst estimates for third-quarter results but guiding down for both the fourth quarter and the full year. Roman said that "the macroeconomic environment remains challenging" but also that the company is making good progress on managing costs and reducing inventory levels.

Now what

3M's Roman is correct in saying some of the company's issues are beyond its control, with some of its large businesses having significant exposure to parts of the economy that were under pressure in 2019. 3M's effort to diversify away from these cyclical areas and trade more like a healthcare stock is in the early stages, but the results so far are not promising.

Despite it all, 3M shares still trade at a relatively rich 21 times earnings. The company's 3.24% dividend yield offers some support, but until 3M can show concrete evidence that the portfolio is once again generating growth, the stock is likely to be stuck in the doldrums.