NEW DIRECTIONAL PUT PLAYS
3M Company - MMM - close: 156.59 change: -0.49
Stop Loss: 160.25
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 2.2 million
Entry on June -- at $---.--
Listed on June 08, 2015
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
3M, the maker of Post-it notes and thousands of other products, has been a darling on Wall Street the last couple of years. It's not hard to see why. Shares have rallied from the low $90s in early 2013 to $170 per share this spring. That's a +88% gain. That is not counting the company's healthy dividend yield. Unfortunately for the bulls it looks like the rally is in trouble as MMM's business faces some serious headwinds.
MMM is in the industrial goods sector. According to the company,
"3M is fundamentally a science-based company. We produce thousands of imaginative products, and we're a leader in scores of markets - from health care and highway safety to office products and abrasives and adhesives. Our success begins with our ability to apply our technologies - often in combination - to an endless array of real-world customer needs. Of course, all of this is made possible by the people of 3M and their singular commitment to make life easier and better for people around the world. We leverage these competencies to create innovative solutions for our customers and to also provide investors with attractive long-term returns." Their annual sales are about $32 billion with 90,000 employees.
MMM's most recent earnings report was April 23rd when the company announced its 2015 Q1 results. Analysts were expecting a profit of $1.93 per share on revenues of $7.83 billion. MMM missed estimates with a profit of $1.85 per share as revenues fell -3.2% to $7.58 billion. A big challenge for MMM was the strong U.S. dollar, which shaved off about $0.10 per share in pre-tax earnings. Management warned that the impact of currency headwinds would be worse than previously thought. They expect 2015 results to fall $0.35-0.40 per share due to currency translation versus prior guidance of -$0.20.
The bad news for MMM is that the U.S. dollar is likely headed for a long-term bull run higher. A weaker euro and yen will accelerate the move higher. Another factor that will drive the dollar higher is the Federal Reserve which will likely raise rates in September. If not September then 2016. Higher rates will boost the dollar. They will also impact MMM's attractiveness as a dividend play.
Right now MMM has an annual yield of 2.6%. As the U.S. bond market sinks the yields on bonds are rising. Today the yield on a 10-year bond is about 2.4%. As this rises it will make MMM less attractive as an income trade.
Shares of MMM broke support when the stock gapped down on its disappointing earnings results in April. Shares bounced back just high enough to fill the gap and then roll over again. This is a very bearish move. On Friday MMM closed below technical support at its simple 200-dma. Now shares are poised to breakdown under support at the $156.00 level. We are suggesting a trigger to buy puts at $155.75. The nearest support appears to be the $146 region.
Trigger @ $155.75
- Suggested Positions -
Buy the OCT $150 PUT (MMM151016P150) current ask $4.30
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike