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Stock Strategist

Industrial Markets Drive 3M, but What Else Is There?

We examine 3M's key divisions and potential leading indicators.

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We believe  3M (MMM) is one of the highest-quality industrial companies we follow. The firm's research and development capabilities across multiple end markets, strong returns in each of its core segments, and ability to defend its market share have led to a wide economic moat, in our opinion. However, we think many investors occasionally misunderstand the economic drivers behind the firm's key end markets. For instance, 3M's LCD television optical film business often dominates headlines, but we note that industrial production seems to truly drive the firm's demand. That said, we also think the company is executing a strategy that should enable above-market growth rates.

Many know 3M for its consumer-facing products such as Post-it Notes and Scotch tape. However, these businesses make up just a portion of the office and stationery division (embedded in the firm's consumer & office segment), comprising just 5.5% of 2010 revenue. We believe this business is one of 3M's most stable, but it is likely much more mature than several other larger, faster-growing opportunities.

Adam Fleck does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.