Why Shares of 3M Sank 27% in the First Half of 2022

What happened

Falling more precipitously than the 18% slide that the S&P 500 experienced over the same time period, shares of 3M (NYSE: MMM) tumbled 28% through the first six months of 2022, according to data provided by S&P Global Market Intelligence.

In addition to the company's involvement in pending litigation regarding its military-grade earplugs, the bearish stance that analysts assumed, downgrading the stock and cutting their price targets, motivated investors to sell shares through the first half of 2022.

So what

Starting the year on an inauspicious note, 3M lost litigation in late January, resulting in it having to pay $110 million in damages due to its allegedly defective combat earplugs. And that wasn't the end of it. Several months later, in May, a federal court in Florida ordered 3M to pay $77.5 million to another military veteran who claimed to have suffered hearing damage as a result of combat earplugs. It wasn't only these two cases, though, that likely shook investors' resolve -- but what they could portend.

According to The Wall Street Journal, the potential fallout from the earplug litigation could cost the company billions as more than 100,000 military veterans have brought lawsuits against 3M, claiming that they too have suffered hearing damage.

While 3M's legal woes are significant catalysts for the stock's decline, the bearish stances that multiple analysts had assumed on the stock had also been leading investors away from the stock. In February, for example, numerous analysts downgraded the stock and cut price targets in response to the company's uninspiring outlook for 2022.

The pessimism extended into March, when analysts from UBS and Jefferies both slashed their price targets to $118 from $168 and to $161 from $186, respectively. The dour sentiment continued in April as well. Julian Mitchell, an analyst at Barclays, reduce the price target on 3M to $155 from $170, and Nicole DeBlase, an analyst at Deutsche Bank, lowered the price target on 3M to $167 from $180.

Now what

A business stalwart, 3M is a conglomerate that has a commanding presence in the various industries in which it operates. Thus, it often draws attention from conservative investors seeking blue chip stocks to fortify their portfolios.

Currently, however, investors seeking low-risk stocks may want to look elsewhere. With the company facing the prospect of paying billions in damages to military veterans over combat earplugs -- in addition to steep legal fees -- 3M doesn't offer the low-risk appeal that it sported in 2021.

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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group Inc. The Motley Fool recommends 3M and Barclays. The Motley Fool has a disclosure policy.

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


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