3M Company has gone a long way since it was founded in 1902. It started as a mining venture and later involved itself with sandpaper manufacturing before it evolved into a conglomerate that produces thousands of products under the industrial, worker safety, construction, production input, healthcare, and consumer goods categories. The company became a publicly traded company in 1946 and began trading its shares on the New York Stock Exchange under the MMM ticker symbol. It is also a component of the Dow Jones Industrial Average, S&P 500, and S&P 100 stock market indexes that track the largest companies in the United States stock market. This article weighs the pros and cons or advantages and disadvantages of 3M stock.
Advantages and Disadvantages of Investing in 3M Stock: A Legacy Company Past Its Prime or a Conglomerate with Further Growth Potential?
Pros: 3M Stock Advantages
The company is part of the Fortune 500 list of the largest companies in the United States in terms of revenues. It also operates several offices and more than 70 countries and subsidiaries in a selected few. Furthermore, as a conglomerate, it operates in various sectors and industries. It owns the popular 3M brand and other popular brands like Ace, Post-It, and Scotch. The company has also expanded its market reach and product lines through new ventures and acquisitions. Investing in 3M means trusting and banking on its ability to remain relevant in the long haul. The following are the advantages of 3M stock:
• Diverse Product Portfolio: The company is not dependent on the failure or success of one product in a particular market sector. A diverse product portfolio gives it multiple sources of revenue. It also enables the company to use its established expertise and resources to develop new products and enter new sectors with growth potential.
• Extensive Customer Base: Another advantage of investing in 3M stock is that it provides its investors with exposure to multiple sectors and industries. It has consumable products for end-use consumers that give a steady flow of recurring revenues. It also has products for the automotive, construction, healthcare, and manufacturing sectors.
• Dividend, Value, and Growth: It is a large-cap dividend-paying stock. Investing in 3M is suitable for investors who are maintaining or building an income-generating portfolio. It also has some of the characteristics of both value sock and growth stock that also make it suitable for balancing between value and growth strategies.
• Further Company Expansion: 3M has a long history of expansion through acquisition and new ventures. It has actively sought various growth opportunities throughout its long tenure. It has recently spun off a new healthcare business called Solventum which develops and commercializes a broad portfolio of healthcare solutions.
Cons: 3M Stock Disadvantages
The diverse product portfolio of the company and its global operations make it more vulnerable to several issues and certain risks. 3M is also vulnerable to issues affecting the global supply chain and is dependent on the economic conditions of its geographic markets. It is also worth noting that the company has wrestled with numerous regulatory and legal issues in the past due to the externalities of its products and business activities. These issues had tremendous cost implications. Investing in 3M also means trusting that it can find its way around current and future challenges. The following are the disadvantages of 3M stock:
• High Expenses From Operations: The operating costs of the company are high because it has to maintain its global presence through marketing initiatives and its diverse product portfolio. This means that a considerable portion of its revenues and even capital-raising activities are spent on maintaining its expansive business operations.
• Cyclical Stock Characteristics: Another disadvantage of investing in 3M stock is that it has become more of a cyclical stock rather than a defensive stock. Its core business is now more focused on industrial and consumer goods sectors after spinning off Solventum. These sectors are more sensitive to economic fluctuations.
• Relaxed Stock Price Growth: It underwent an upward trend in its stock price starting in November 2011 when it traded at around $63 per share. This peaked at around $200 per share in February 2018. It has since experienced more volatile movements that are in line with cyclical trends. Its shares now trade around $100 since June 202.
• Considerably High Debt Load: The company has a declining debt from 2020 to 2023 but it still has a high debt load. This comes from its large acquisitions in the past, restructuring efforts, research and development, and its efforts to provide dividend payouts that have compelled it to use debt financing to supplement its cash flow.
