Will Exposure To Weakening China Boomerang On 3M?


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After breaking out of a base about 15 months ago,3M ( MMM ) rose 49% by the end of 2013.

For a blue-chip dividend stock, that's a remarkable performance.

Since then, the stock has consolidated as it works on a stage two pattern. Given that 3M isn't a glamour stock, expectations surrounding any new breakout should be lowered.

The stock has already had a big run, and it is not a CAN SLIM stock.

Also, the current consolidation is on the sloppy side. Weekly trading ranges have included some wild action. The left side of the base includes two days of gap-down action on Jan. 23-24. What was happening then?

On Jan. 23, Markit reported that manufacturing contracted in China for the first time in six months. Former hedge-fund manager Jim Cramer of CNBC's "Mad Money" mentioned 3M's ties to China and said, "Not for me." (Markit reported further contraction in February and March.)

Big-cap 3M derives about 10% of its revenue from China, and Bloomberg News recently reported that the company expects China sales to grow three times faster than overall company revenue.

On the plus side, 3M grew earnings 15% in Q4, its best gain in 14 quarters. The Ceradyne acquisition, which was wrapped up in November 2012, helped growth. Also, shares outstanding declined 3%, which added 5 cents to EPS. Without the change in shares outstanding, EPS growth would have been 11%.

The company operates in more than 70 countries and gets about two-thirds of its revenue from outside the United States. Because of the hefty foreign-revenue factor, a strong U.S. dollar would hurt sales and earnings.

At the Jan. 30 earnings call, CEO Inge Thulin said the company is hoping to do $5 billion to $10 billion in acquisitions through 2017.

In December, the company increased the quarterly dividend 35%, from 63.5 cents a share to 85.5 cents. The annualized yield is 2.5%. The payout has more than doubled since 2005.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Investing Ideas

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