With 3M, it's probably now or never for an outsized gain

Posted Aug 14th 2009 3:10PM by Joseph Lazzaro
Filed under: Stocks to Buy

I'm Reiterating my Buy rating for 3M Co. (NYSE: MMM), first recommended on April 20, 2009 at a price of $51.97. If you purchased MMM at that time, you're up a solid 37%.

Back in April, I argued, among other factors, that a strong case for buying 3M's shares could be made based on the company's strong free cash flow, net return on capital, and reasonable P/E (the about 11), before everyone else jumped on the bandwagon.

Well, with a P/E of 17, 3M is nowhere near as cheap today, but I still like the shares here, around $70. However, this will probably your last chance to earn an out-sized gain, given that 3M's cycle top will probably by about $110. So it's now of never with 3M. The First Call FY2009/FY2010 EPS estimates for MMM are $4.27 to $4.57.

Stock Analysis: 3M Co. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in MMM now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your MMM position before October 2009. Sell/Stop Loss if you were to buy shares in this company: $32.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: 3M, inthenews, MMM