3M And The Growth Trap (Podcast)

3M Company has had one of its worst months in recent memory, as growth concerns abound for the industrial giant.

The question for investors, whether those looking for dividends or otherwise, is stick or split?

We look at the bear case and what's going wrong for 3M, and then reconsider what has gone right in the past (and could go right again).

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by Daniel Shvartsman

Michael Boyd has been writing regularly about 3M Company (MMM) and has, at least as of late, produced some prescient analysis. We start today's Behind the Idea with his article from after the April earnings call, which marked a serious inflection point for 3M's shares, with the company completing its worst month of stock price performance (April 23-May 23rd 2019) since at least January 2007. I suspect, eyeballing the chart, that this goes back much further.

What's going on? Boyd points to repeated missing guidance and for the first time, concerns over the company's execution. An ambitious investor presentation had tided over worries for some time, but Q1 appears to be the sign that investors no longer have faith in that plan.

There are different mindsets to consider when looking at 3M. Existing holders need to consider whether this is enough to rock their faith and shake them out of a position in the stock. New investors may circle to see if this is a buy the dip opportunity. And the more skeptical investors out there may be watching for a short.

Mike and I take Boyd's article as a starting point to see what's going wrong, but then back up and consider what makes 3M different, how serious these near-term issues are, and what mindset investors might bring to the 3M story. We end up hitting on a surprisingly personal connection to the company, and a somewhat upbeat outlook. Have a listen:

Topics Covered:

  • 3:00 - Setting the scene with 3M's slowing growth picture
  • 8:30 - The upper bound of growth for a 120-year-old company
  • 11:15 - The corporate culture at 3M and its innovative history
  • 15:30 - And then the recent track record of missing guidance
  • 21:30 - Credibility, macro headwinds, and what to make of the misses
  • 27:15 - The DGI mindset - appropriate or ostrich-like?
  • 33:45 - Where does MMM beat an index?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Neither Mike nor I have any positions in any stocks mentioned. Nothing on this podcast should be taken as investment advice.

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