Mad Money Mailbag: 3M Falls From Grace
Editor's Note: The following are questions received from viewers of "Mad Money," seen every day at 6 p.m. EDT on CNBC.
What do you think of 3M (MMM) - Get Report? Is this a good defensive stock?-- Chris from Philadelphia
James J. Cramer:
Since former CEO James McNerney left the company this summer for
Boeing
(BA) - Get Report
, which I own for my charitable trust,
ActionAlertsPLUS, I no longer rank 3M in the upper echelon of the manufacturing conglomerates.
I believe that viewers would be better served holding
Textron
(TXT) - Get Report
because of its aerospace exposure and discount valuation.
Is there a general rule about price-to-earnings ratios that a ratio below 10 means a stock is undervalued?-- Karl from Alabama
James J. Cramer:
The best way to compare a stock's P/E ratio is against those of other companies in the same industry, because some growth sectors, like technology, consistently demand a premium to other sectors, like the financials.
That said, you can also use the P/E ratio of a broad market index like the
S&P 500
(currently 16.5 times expected 2005 earnings) to see how a company or its industry stacks up against a wider range of companies.
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