What happened

Shares of 3M (MMM -0.66%) declined 11.6% in the first half of 2020 according to data provided by S&P Global Market Intelligence. It's hard to be too critical of the company because as a multi-industry manufacturer, it was always going to take a hit when the COVID-19 pandemic struck the economy. 

Risk balancing reward.

3M will attract value investors. Image source: Getty Images.

It's a frustrating situation for investors in the company because this was supposed to be the year when they started to see the benefits of CEO Mike Roman's restructuring. Unfortunately, the damage of the COVID-19 pandemic is going to obscure any underlying improvements for now.

So what

The disappointing performance of the previous years led to the company losing its premium valuation rating in the industrial sector. As such, investors were looking forward to seeing some improvements in 2020. In a nutshell, 3M went from being the high-quality industrial company priced at a premium, to becoming the value option in the industrial sector. 

While there was clear evidence that 3M didn't deserve its premium rating in 2019, it may be the case that the stock is now undervalued compared to its peers.

This argument is particularly relevant because Roman appears to be serious about restructuring the company. For example, the business segments have been reduced to four from five, and its business groups are now run on a global basis. Meanwhile, 3M made $7.7 billion worth of acquisitions in the healthcare sector in 2019, and sold off its underperforming drug delivery business for $650 million in 2020.

MMM Price to Free Cash Flow (Annual) Chart

Data by YCharts.

Now what

Investors can keep an eye on 3M's end markets because the company is giving monthly updates on sales trends. However, it will take some time to see if 3M's operational performance has turned the corner. As such, cautious investors will be prepared to stay in wait-and-see mode.

But the stock's substantive cash flow generation should limit the downside. Meanwhile, the considerable opportunity for Roman to restructure the company will surely attract value investors.