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and consumers cut spending during a recession,
feel the pain more than most. As demand grinds to a halt, investors tend to dump their shares.
, however, has weathered the
better than its peers. The St. Paul, Minnesota-based company's shares have dropped 17% in the past year, less than the 33% decline for the industrial sector.
3M produces goods people take for granted, such as stethoscopes, traffic signs and tape. The firm operates in fields as varied as health care, security and optics. It caters to consumers and companies at every price. While this diversification has limited growth, the strategy has helped 3M avoid the volatility that's plaguing its competitors.
In the past 10 years, 3M shares have returned 5.7% a year, on average, as the overall industry stayed flat. The company's lower risk can be seen in its adjusted beta value, a measure of volatility, of 0.88. It's the kind of stock that can help balance portfolio swings.
The downside of reduced volatility is lagging performance when markets are bullish. This quarter, 3M has risen 21% while the industry has risen 26%. Among members of the Dow Jones Industrial Average, 3M ranks in the middle for stock performance in most time periods.
Missing the juicer gains is the price investors must pay for predictable stock movement. Still, with a dividend yield of 3.4%, 3M isn't a sleepy stock either.
3M posted a return on equity of 32% in past 12 months, more than doubling the sector's return of 15.5%. The company's price-to-earnings ratio suggests it's slightly undervalued, with a ratio of 15.5 versus 16.3 for the industry.
The company reduced some of its balance sheet risk in the first quarter, cutting more than $900 million in debt. Its interest coverage ratio of 14.8 shows the company can afford the cost of its debt.
3M has taken its share of knocks this year. First-quarter revenue fell 21% and net income sank 48%. Last month,
cut 3M's debt rating one level to Aa2 from Aa1. Analysts expect conditions to improve in the next two quarters.
TheStreet.com Ratings rates 3M "hold" with a grade of C-plus. Fellow Dow members
might be big winners in a turnaround that will see revived demand from the developing world. But during the bumpy transition phase, 3M will offer smoother performance.
TSC Ratings provides exclusive stock, ETF and mutual fund ratings and commentary based on award-winning, proprietary tools. Its "safety first" approach to investing aims to reduce risk while seeking solid outperformance on a total return basis.
Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level II CFA candidate.