By: Scott Davis
3M is arguably the most out of favor of the multi-industry names (just 10% of analysts with a buy rating vs. 44% for our average name), yet has most of what we look for at this point of the cycle. It’s short cycle, now coming up on a full 5 quarters of a recession and 9th quarter of weak results. We’ve had 5 meaningful negative earnings revisions (could argue 8…) and a normal downcycle is 4-6 quarters. 3M is global and coronavirus is a threat, but it’s one of our few names with a flu/coronavirus hedge – since 3M is the largest U.S. supplier of N95 respirator masks. And as we’ll show in this report, 3M was a meaningful outperformer during the last SARS panic in 2002. The most global of our industrial names are selling off the sharpest in this correction. 3M, DuPont, GE, and Honeywell are each global names that stand out to us as most interesting for investors who can look through a likely tough 1H20. Our upgrade of 3M stock today puts the rating on par
with those other names.