The Stock: 3M Company
Recent price: $88.67
Although the share prices of conglomerate stocks are often discounted well below the value of the sum of their parts, these mighty multinational industrial, technology, and service enterprises can represent a potent vehicle for investors to diversify their exposure in the face of economic risks. Recent relative performance of many diversified conglomerate stocks suggests investors have found a comfortable parking spot as the broad North American stock market grapples with a long-term outlook.
The stocks of General Electric Co. , United Technologies Corp. , Honeywell International Inc. , Tyco International Ltd. , and Danaher Corp. are in solid Stock Trends Bullish categories, and almost all the stocks tapped new 52-week highs last week before slipping with the market. Shares of GE - the mother-of-all conglomerates with its $800-billion enterprise value (a measure of combined equity and debt minus cash, that approximates a buyout value for the company) - have gained 34 per cent since the stock turned Stock Trends Bullish late last summer. By comparison, the S&P 500 Index has advanced only 15 per cent during the same period. Recent growth in relative strength among conglomerate stocks points favourably to these blue-chip investments.
The Trade: The trademark brands of 3M Co. are a ubiquitous testimony to the innovative spirit of America - with virtually every child an early adopter of Scotch tape and Post-it Notes - but this storied industrial enterprise has its finger in a broad range of technologies, products and services beyond the consumer and office segment of its business. Digital displays and graphics, electronics and communications, health care, industrial and transportation, as well as safety and security products and services round out the company's broad source of revenue - over $20-billion annually.
Improving global economic performance shows in 3M's most recent operating performance, with earnings handily beating expectations. Last week's third-quarter financial results helped pump 3M's stock even more as shares topped $90 for the first time since October, 2007. Share-price momentum in the past two weeks now points to further advances as trading activity has elevated. Volume of shares traded last week was 77 per cent higher than 3M's average weekly volume year-to-date. With the stock outperforming the S&P 500 index for three of the last four weeks investors can still harness this solidly bullish trend.
The Upside: Despite the recent price advances, 3M's stock has lagged behind its peers over the last three months. Its 10-per-cent advance is half of the SPDR Industrial ETF performance over the period. However, expect short-term traders to add to the demand for this more typically long-term conservative investment. Periods of rising 13-week price momentum have indicated an approaching rise to the $75 and $85 levels along the current bull trend. In the current bullish market environment, another 10-per-cent advance to the 2007 high would make for a suiting close to this stock's recovery.
The Downside: Trend-line support at the 13-week moving average trend line is marked at $82.50, but short-term investors can consider the $85 level as a trigger for trade review. Long-term investors know that diversified 3M, a dividend aristocrat, outperforms the broad market when there is a bearish slide in stocks and will not be deterred by a pullback below trend.