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3M's Quality Is Worth the Premium

NEW YORK (TheStreet) -- Whether bearish or bullish, Wall Street analysts can develop a funny groupthink about a company's investment worthiness. And there's always a convenient change in sentiment, whether from year to year or quarter to quarter.

Everyone seems to have margin concerns about industrial conglomerate 3M (MMM), a company often praised as a great defensive stock in tough economic conditions. With the market still at record levels, groupthink "logic" now suggests that 3M shares have gotten too expensive and should be sold. The premise is that it's best to own a rival company that has not performed as well in the trailing 12 months. This makes absolutely no sense.

[Read: Profit on Home Retailers]

With 3M shares only 3% away from their 52-week highs, I'm not going to raise an argument that the stock is cheap. Good companies very seldom are. It's not as if 3M's price and/or valuation has diverged from other well-run conglomerates like General Electric (GE) or Honeywell (HON), which trade near their 52-week highs. There are no bargains left.

What's more, the recent narrative about "repeated margin weakness" in 3M's business has been exaggerated. Yes, margins haven't been up to the company's historical standards in the past couple of quarters, though management has consistently matched its guidance both on a reported and incremental basis. I believe any notion suggesting that investors should dump this winner only to bet on a "long shot" is misguided, if not entirely bizarre.

I have nothing against taking a profit. That's the whole point of investing. But let it be for a good reason, one that goes beyond exchanging a good company for a bad one. I'm won't deny that there are execution risks with 3M. I grant that last year's 54% stock gains, which are still on the table, might suffer if the company underperforms. Management also has a viable long-term strategy in place. And it's one that can accelerate growth as the global economy continues to improve.

Stock quotes in this article: MMM, GE, HON, DHR, JNJ 

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