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Stock Analyst Update

3M Is a Solid Play on High-Tech Growth

Company unfazed by high raw material costs; outlook good for 2001.

What Happened?
Industrial and consumer conglomerate Minnesota Mining and Manufacturing (MMM), better known as 3M, reported third-quarter earnings of $1.25 per share, a penny above Wall Street estimates and 10% better than a year ago. Sales growth was particularly strong in Asia, where weak sales hurt 3M's bottom line in 1998 and 1999. The company said it expects to meet earnings targets for next quarter and for 2001, despite high raw material costs and the strong dollar.

What It Means for Investors
These results are a confirmation of 3M's efforts to make itself a less cyclical company, and we think they bode well for the future. Over the past several years, 3M has poured a lot of resources into its faster-growing, higher-tech businesses, and that effort is bearing fruit. Sales in its Electro and Communications division grew 23% this quarter, helped by its acquisition of telecom equipment maker Quante. The company also saw strong growth in its optical films for cell phones, personal digital assistants, and other high-tech gadgets.

But even in its more industrial businesses such as adhesives and abrasives, 3M has held up extremely well in the face of rising raw material costs and unfavorable currency rates overseas. In Monday's conference call, company officials had lots of praise for their procurement department, which used Internet auctions and other methods to keep costs down and boost the company's gross margin. This, combined with its increased tech emphasis, suggests to us that 3M is likely to hold its own better than other industrial companies in the event of a general economic slowdown. Given that its valuations are still at or below their five-year averages, we think 3M will be a very solid stock to own.

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