Does 3M Support All-Time Highs?

With shares of 3M (NYSE:MMM) trading around $105, is MMM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

3M is a diversified technology company with a presence in the industrial and transportation; health care; consumer and office; safety, security and protection services; display and graphics, and electro and communications businesses. 3M manages its operations in six business segments: Industrial and Transportation; Health Care; Consumer and Office; Safety, Security and Protection Services; Display and Graphics, and Electro and Communications. 3M products are sold through a number of distribution channels, including directly to users and through wholesalers, retailers, jobbers, distributors and dealers in a range of trades in a number of countries worldwide. Through its segments and exposure to various industries, 3M is a diversified company that will continue to provide core products to businesses and consumers worldwide.

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T = Technicals on the Stock Chart are Strong

3M stock has been a great performer in recent years are it has recently broken above long-term selling price levels. The stock is now trading near all-time high prices and shows no signs of slowing. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, 3M is trading above its rising key averages which signal neutral to bullish price action in the near-term.

3M

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of 3M options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

3M Options

20.58%

83%

80%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on 3M’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for 3M look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

5.19%

8.55%

3.75%

6.71%

Revenue Growth (Y-O-Y)

4.20%

-0.45%

-1.90%

2.39%

Earnings Reaction

0.18%

-4.1%

2.07%

1.56%

3M has seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been pleased with 3M’s recent earnings announcements.

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P = Average Relative Performance Versus Peers and Sector

How has 3M stock done relative to its peers, Danaher (NYSE:DHR), Johnson & Johnson (NYSE:JNJ), Honeywell (NYSE:HON), and sector?

3M

Danaher

Johnson & Johnson

Honeywell

Sector

Year-to-Date Return

13.60%

5.56%

20.86%

17.43%

6.44%

3M has been an average relative performer, year-to-date.

Conclusion

3M provides products to a vast array of companies in various industries and consumers around the world and will continue to do so well into the future. The stock has recently broken above a long-term selling zone and has been consistently trending higher. Earnings and revenue are growing at a modest pace which has generally pleased investors. Relative to its peers and sector, 3M has been an average performer in a strong sector. Look for 3M to OUTPERFORM.

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