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3M

(MMM) - Get Report

manufactures a wide variety of products in the adhesive, coatings, electronic and health care areas, totaling more than 55,000 products worldwide. MMM has been noted for its Post-it and Scotch brands but has recently channeled efforts and resources to electronics and health care.(This morning,

3M

(MMM) - Get Report

said earnings rose 6% from last year, boosted by strong results in its industrial and electronics-related segments. It earned $761 million, or 99 cents a share, in the quarter, compared with $720 million, or 91 cents a share, a year ago. Excluding an accounting charge, 3M earned $1.04 a share in the most recent quarter, beating the Thomson First Call consensus by a penny.)

In December, MMM hired CEO George Buckley from

Brunswick

(BC) - Get Report

, replacing James McNerney, who left MMM for

Boeing

(BA) - Get Report

. (Mr. McNerney joined MMM in 2001, after he left

General Electric

(GE) - Get Report

.)

This report will give investors a glance at Buckley's directing of the company and whether he will stick with the turnaround strategy begun by McNerney. Leadership, growth and asbestos liabilities have hung over the stock for the past year or so.

MMM's global reach has allowed it to grow even as its U.S. business has matured. This has led to the search for higher-growth businesses, particularly health care, displays and graphics. The pharmaceutical business has a lot of potential upside and may be MMM's biggest opportunity.

The holiday season for MMM probably saw steady unit-demand growth for flat-panel-display televisions, but declining prices. Televisions make up about 20% of MMM optical division's sales. Growth for 2005 in this division is expected to be up around 35%. This is important as this division has been the predominant contributor to profit growth (25%) over the past three years.

The weak U.S. dollar also has been important to profitability growth as it has made MMM more competitive overseas while increasing the dollar value of those foreign sales.

Margins have been a concern, and MMM seems to be inching its way back higher. Gross and net margins have ticked higher, and growth of its higher-margin businesses will help this trend. I expect net margins to be above 15% in the quarter. MMM has a strong balance sheet aided by strong cash flow. MMM also has an eye-popping 30%+ return on equity.

To view Angela Ottomanelli's video take on 3M, click here

.

At the time of publication, Stavetski was long 3M.

Edward J. Stavetski founded Pembroke Capital Management in 2002. He is the chief investment officer and manages money for individuals, small business pensions and small foundations. PCM's investment style is large-cap and small-cap value. Before founding PCM, Stavetski was director of research for Pitcairn Trust Company, a family office and mutual fund company; chief investment officer and managing director of PNC Advisers, the investment management and trust division of PNC Bank and senior portfolio manager for Rorer Asset Management, an investment advisory firm managing individual and institutional portfolios. He graduated with a bachelor's degree from West Virginia University. He is a member of the Association for Investment Management & Research (AIMR) and the Financial Analysts of Philadelphia. He is also a board member of Financial Analysts of Philadelphia and serves as vice-chairman of AIMR's professional development committee. Send Edward Stavetski an email.