Â Over the next few weeks, I hope to do an individual valuation of each of the components of the Dow Jones Industrial Average.Â For a brief overview of the Dow, please see our Glance at the Dow – a snapshot of the valuations on March 10.Â When I have completed the individual valuations, I will put together another overview.
Company Profile:Â 3M (MMM) (obtained via Google Finance)
Business and Management Review
1) Is the business simple and understandable?
3M is in a number of businesses worldwide, but its overall strategy is simple and understandable.Â The company seeks to create innovative products to sell to its customers (whether businesses or consumers) and strives to be the best company in every market it competes in.Â
The company has evolved considerably from its original operating strategy of mining corundum in the
While George Buckley, Chairman and CEO, has only been with the company since 2005, he has shown no reasons to think he is irrational.Â The company remains devoted to its strategy, and does not seem to make unnecessary acquisitions.
The company has a standard investor relations page, with earnings reports, webcasts, etc.Â A look at the latest annual report indicates a clear and detailed explanation of the companyâ€™s goals and strategy for the coming year.
The market cap of 3M is $54.6 billion.Â Pass.
The companyâ€™s current ratio is about 1.7, below the 2.0 requirement.Â Fail.
The company has had a consistently positive net income for over 10 years.Â Pass.
3M has consistently paid a dividend for over 10 years.Â Pass.
Earnings have grown more than 1/3 over the last 10 years.Â Pass.
With a PE ratio (using our Methods) of 16.39, the requirement of under 20 is met. Â Â Pass.
The Price to Book ratio for 3M is 4.45, higher than our 2.5 limit.Â The multiple of PE to PB is higher than our requirement of 50.Â Fail.
Having passed only 5 of the required 7 tests for the defensive investor following Benjamin Grahamâ€™s value investing strategy, we do not believe 3M is suitable for the defensive investor.
The companyâ€™s current ratio is above 1.5 and debt to net current assets is greater than 1.1.Â Pass.
The company has achieved a positive net income for over 5 years.Â Pass.
The company currently pays a dividend.Â Pass.
Earnings are greater today than they were 5 years ago.Â Pass.
The price is not less than 150% of the net tangible assets.Â Fail.
We find the company to be suitable for the enterprising investor, having passed 4 out of 5 tests.