You have the skeptical, critical eye of a value investor. How about a valuation with regression to the mean (cyclically adjusted) margins, earnings, cash flows, cap-ex? What would be your estimated FUTURE return buying at TODAY’s PRICE? Now if MMM is priced like you say what does it say for the garbage part of the market?

long day.

“This blue chip remains a timely selection, thanks to a steady string of favorable earnings comparisons and strong share-price momentum. The equity is now trading at an all-time high, however, so long-term capital appreciation
potential leaves a bit to be desired in our opinion.”

At the VL glance, 3M reminds of the market in general – it is a business trading at an all time high, with a favorable string of earnings, strong share price momentum, and continued elevated profit margins. How much longer can 3M (and the market) continue to exceed expectations uninterrupted in a ‘soft operating environment’ (ie. general economy).

I don’t know exactly what 3M’s future return to investors will be, but this does not appear to be a fat pitch, so I would extrapolate that the returns would be lower than the past several years. Also, income investors are content to stand around and 2.4% in yield per YEAR, meanwhile there is no guarantee that original invested principal will be preserved – there is no maturity at par. A -3% from cost basis temporarily negative the gain on the ‘dividend income stream’ that they invested for in the first place. Further significant price declines, even though possibly temporary, would likely induce fear into the retail/retirement investor still emotionally scared from having their 401k’s reduced to 201k’s 4-5 years ago.

Anytime I have to play a game because there is a gun to my head, it’s not a game I want to be playing.

I believe the expected return to be aprox. 5-6%.

Secondly, what about regression to the mean in a CYCLICAL business? What is causing HIGH profit margins and is it sustainable?

Dividends come out of free cash flow so you don’t add it on as a return.

We’re at $112 halfway thru 2013.

Near the end of 2016 their chart shows it at about $140 with an incredibly tiny confidence interval of +/- 5 bucks.

So that’s 9.3% annualized not including the dividend. I can do this in my sleep – NEXT!

MMM should offer a prospective return of about 10.4% which will grow about 4.5 to 7.5% depending on the pace of buy-backs and margins on additional sales. I base this on $8.95 of FCF in the current year which implies an 8% yield on a $112 share price plus a 2.4% dividend yield. The growth is a split between recent fcf growth and VL’s forecast.