Should You Buy the Dow — 3M

Today, were looking at Dow Jones Industrial Average component 3M (NYSE: MMM ).
Ive always found comfort in this stock because every time I turn around in my
home, one of its products is staring me in the face. Take a gander at just a few
that I held in my hands just today: 3M glue sticks, CD-ROMs, Post-It Notes,
Scotch Cassette Deck Head Cleaner, Nexcare band aids, Scotch tape (and
dispenser), Oxy Carpet Cleaner, O-Cel-O Sponge cloth, Scotch-Brite pads and
Scotch micro-fiber cleaning cloth Scotchgard. Those products are known as
consumer staples as in, things people really cant do without. Of course, 3M
also sells products in multiple other industries. Its Health Care segment
provides medical and surgical supplies, drug delivery systems and food safety
products. The Display and Graphics segment offers optical film solutions for LCD
electronic displays; computer screen filters; reflective sheeting for
transportation safety; commercial graphics sheeting and systems; and mobile
interactive solutions. Its Safety, Security and Protection Services segment
offers personal and commercial protection products. Its Electro and
Communications segment provides packaging and interconnection devices;
insulating materials, including tapes and resins; and related items. The key
driving factors regarding 3M are competition and the economy. What I love is
that MMM not only deals in consumer staples, but many of the items in the
broader categories are almost commercial staples. There are so many areas 3M can
make money that its hard for it not to. Despite being a company thats over 100
years old, stock analysts looking out five years still see annualized earnings
growth at 12%. At a stock price of $79, on FY 2011 earnings of $6, MMM stock
presently trades at a P/E of 13, which is right near that long-term growth rate.
Like many Dow companies, 3M has a hoard of cash. In this case, its $4.52
billion, almost exactly offsetting its $4.84 billion in super-cheap (under 5%
interest) debt. Trailing 12-month cash flow was $3.8 billion. MMM also had 2.5
times the amount of free cash flow necessary to pay its 2.7% dividend.
Conclusion 3M is a powerhouse company, a classic Dow stock, and even qualifies
in my handbook as a growth play. Its history, product mix and solid free cash
flow convince me to put a slight premium on its P/E valuation. If we put an 14
P/E on 3M, then, on projected 2015 earnings of $10.22 per share, and factoring
in 2.7% compounded dividend yield reinvested, we get a price target of $143.
Thats almost a solid double from these levels. I believe MMM is a buy for
regular accounts. I believe MMM is a buy for retirement accounts. As of this
writing, Lawrence Meyers did not own a position in any of the aforementioned
stocks. Check out Meyers take on other Dow Jones stocks here .