The market's volatility and summer selloff have no doubt rattled investors, but for those who are interested in the fundamental, long-term approach, the lower averages signal potential value. There are more good companies whose stocks become available at better buying prices with each subsequent market drop.
3M, A Dow Stalwart
Global industrial conglomerate 3M (NYSE:MMM) does $27 billion in annual sales and generated $4.1 billion in free cash flow in 2010. The company is highly innovative, as it has a culture that's based on producing new products in all its segments. Although the company is best known by consumers for its Scotch brands and such things as Post-it, its core business segments also includes its largest - industrial and transportation - as well as electro-chemical, and others. (For related reading, see Vital Link: Manufacturing And Economic Recovery.)
In its recent quarter, 3M achieved record sales of $7.5 billion even in what is a slowing global economy. The company is a relentless dividend payer since 1916, and has increased its payout 53 consecutive years. The current yield is 2.7%. Earnings have ranged from $4.52 to $5.63 a share in the last five years, though they've fluctuated through the recession. Likewise profit margins have fluctuated, though they've been in a mid 13% to 16% plus range in the same time period.
The stock recently traded at $80.56, well off its $98.19 52-week high, on concerns for the company's growth in the slowing global economy. Other than the market's near-collapse from 2008-2009, this tends to be the lowest range 3M stock has traded in the last five years. Even at 3M stock's nadir in March of 2009, when its share price went under $42, six months later it traded in the $70s again. United Technologies (NYSE:UTX) and Boeing (NYSE:BA) are well-known companies that compete in 3M's industry.
Paint, Seal, Coat and Profit
Specialty paint, coating and chemical company RPM (NYSE:RPM) is another excellent candidate for value investors to look at. The company reported its fourth quarter and full-year results at the end of July, and the results were outstanding. Its pro-forma results showed an 11% increase in sales for the quarter, year over year, and an 8.5% increase for its fiscal year. Pro forma net income for the quarter grew 15%, and 16% for the year. The pro forma results include the deconsolidation of one of RPM's holdings and give a truer picture of performance than the as-reported numbers.
These impressive results were achieved in the face of difficult conditions in the consumer segment as well as headwinds from the moribund commercial construction market. RPM is a well known dividend payer, with a current yield of 3.7%.The stock traded recently at $22.52.
Mining Its Own Business
Cliffs Natural Resources, Inc. (NYSE:CLF), known for its iron ore mining, also mines metallurgical coal, both for the steel industry. The company's business has surged in the last five years. In 2006, it produced revenue of $1.9 billion, with its 2010 total $4.7 billion. Revenue dipped in 2009 when the economy retreated and net income has fluctuated as well in the last five years, but overall has grown from the $200 million to $280 million range to more than $1 billion in 2010.
Cliffs is attached to a very cyclical industry, so naturally its stock price is going to reflect this. The stock is currently trading in the middle of its 52-week range, at under $70 a share, as the potential for further global slowing in the economy seems priced in. Cliffs, however, has also shown dynamic long-term growth, as its stock price rose from under $20 a share in 2006 to over $100 a share in 2008. (For more on cyclical stocks, see Cyclical Versus Non-Cyclical Stocks.)
The Bottom Line
These are three strong companies whose stock prices have been dragged down in the market selloff and who suffer from the perception that they won't be able to grow their businesses as well in the current global economic industrial and manufacturing climate. These companies have shown great resilience and strength, however, and their underlying stocks now trade at attractive buying prices.
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