3M stock price analysis: here comes the golden cross

3M (NYSE: MMM) stock price is firing on all cylinders this year. It has jumped by almost 50%, making it the best-performing company in the Dow Jones Industrial Average. 

The company has also outperformed other industrial peers as the Industrial Select Sector SPDR Fund (XLI) and the Vanguard Industrial ETF (VIS) have risen by 17% this year. 

This is a strong comeback for a company whose growth has stalled and whose portfolio of products is aged. It has also suffered major legal setbacks, including a $6 billion for its combat earplugs and $12.5 billion for its poly-fluoroalkyl, popularly known as forever chemicals.

Before the recent fines, 3M was fined $850 million for forever chemicals in Minnesota. These are huge fines even for a company valued at over $71 billion. 

3M turnaround is underway

The company has now embarked on an ambitious strategy that it hopes will help it bounce back. 

As part of the strategy, 3M has reduced the scale of its business by spinning off its healthcare company business. Solventum is its healthcare business, which provides oral care, skin and wound care solutions, and vascular access and securement products. It has a market cap of over $10 billion.

The company has also done what many firms in a similar situation have done in the past: hire a new CEO. It has hired William Brown as the CEO and Anurag Maheshwari as the new Chief Financial Officer (CFO) starting in September.

Management change for troubled companies has produced mixed results. Some, like Rolls-Royce, General Electric, and Chipotle Mexican Grill have thrived after bringing in a new CEO.

The problem for the new management is that most of its current products are old and are no longer growing as they did before. As such, it needs to spend substantially more money on Research and Development. 

In the last quarterly results, the company said that it was looking at ways to boost its growth. According to Brown, he is considering selling some its non-core assets and also buying companies. He said:

“While no acquisitions are on the near-term horizon, I’ll be taking a fresh, dispassionate look at our portfolio to determine if any assets have greater value owned by others, and along the same line, what assets might be a good fit for 3M.”

Fortunately, while 3M has major legal liabilities, it can still use its equity to engineer an acquisition to boost its growth. 

3M is also working on reducing its complexity, changing manufacturing and logistics, and improve on its supply chain management. Most notably, he is cutting costs and working to boost its dividend payouts.

3M’s growth has stalled

Looking at 3M’s business shows that its growth has disappeared in the past few years. Iy made over $25.9 billion in net sales in 2021, $24.8 billion in 2022, and $23.32 billion in 2023. Its operating income has also fallen from $5.25 billion in 2021 to $4.3 billion last year as its operating margins fell.

Its business has slowed in all segments: safety & industrial, transportation & electronics, and consumer. 

Analysts expect that 3M’s revenue will be $6 billion in the current quarter and $23.62 billion in the full year. Its performance will be helped by price increases and its ongoing focus on high-growth areas like automotive electrification and climate technology. 

Analysts have a mixed outlook for the stock. Deutsche Bank recently upgraded the outlook from hold to buy while Argus Research rose it from hold to a buy. Other analysts like Citi, Barclays, and Bank of America maintained their view.

3M has a strong balance sheet with over $10.3 billion in cash against a total debt of over $13.79 billion. This means that it can pay its fines gradually over time.

3M stock price analysis

3M stock price chart | Source: TradingView

The 3M share price has done well in the past few months, as I predicted. It has surged from $68.46 in 2023 to over $130. 

On the weekly chart, it is nearing the 78.6% Fibonacci Retracement point. It has risen above the key resistance point at $128.74, its highest point on July 29, invalidating the double-top chart pattern. 

Most notably, the 200-week and 50-week Exponential Moving Averages (EMA) are about to cross each other, which would form a golden cross pattern. In most cases, this pattern is one of the most bullish chart patterns.

However, the Relative Strength Index (RSI) has moved to the extreme overbought point of 80 while the Stochastic Oscillator has moved to almost 100.

Therefore, the stock may continue rising in the coming weeks as bulls target the key resistance level at $151, 15.15% above the current level. However, there is a likelihood that the stock could go through a pullback and then resume the rally.