Trade Notes: Buying on a Bad Day

Details on three new positions in the Real Money Portfolio (and a couple sells)

By Travis Johnson, Stock Gumshoe, October 28, 2020

Time for an unusual mid-week Trade Note for you, dear friends. I have a few cute little limit orders who had been sitting in the back of my brokerage account for a while, gathering dust and muttering about valuations, and the recent market weakness woke them up… so they just came running in to tear some cash out of my wallet, and I’ve got a few minor updates for you as a result.

The first little purchase was in an existing position that just reported its third quarter results. 3M (MMM) earnings were pretty solid, though there wasn’t much enthusiasm because they failed to provide any guidance — there’s a lot of that going around, of course, companies are taking the opportunity presented by the COVID-19 uncertainty to be circumspect and avoid making promises about the future. Their earnings were a little better than expected, revenue fell in the quarter because of the coronavirus, but was also a little bit better than analysts had anticipated. This is an odd year, for sure, with the collapse of the office supply market and the automotive market, two of their big customers, and the surge in healthcare demand for respirators and masks making up only part of that shortfall, but it should even out over time as industries normalize. We’ll need car parts and sticky notes again, even if we didn’t need as many over the summer as we normally do, and within a year or so the demand for respirators and other healthcare consumables will probably moderate.

MMM is a long-term innovator and survivor with a persistently strong corporate culture, and an almost unimaginable record of raising its dividend every year for 63 years now (and paying a dividend for 100+ years).

Their quarters ebb and flow, and they have certainly lost some of the investor adoration they had two or three years ago when the stock got into the $200s, before their environmental cleanup claims and some bad quarters, but I don’t think 3M’s culture of innovation and efficiency is going to disappear because of a bad couple years… it’s obviously possible for the stock to fall another 20%, but over the long term I think buying a 100-year survivor with continuing growth and a strong and easily covered dividend of 3.5%+ is pretty easy. 2020 will be a down year, as for many companies, but growth should resume and I ...

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