3M: Still Making Money

In This Issue: 3M: Still Making Money Buying Biotech Go Global, But Don't Go Crazy Profit from Russia's Energy Woes Things are getting rough for the Russians. Obama just slapped some of their key energy companies with sanctions, trying to get them to fall in line for their actions in the Ukraine. This comes on top of them losing the race to claim the Arctic last year. You may not know it but the Arctic holds a treasure trove of energy – 90 billion barrels of oil and 1,670 trillion feet of natural gas. And one country's bold move slammed the doors on Russia getting to it first. I'll show who it is and why they did it – along with how you can bank gains of up to 1,240% – when you click here. 3M: Still Making Money 8/28/2014 By Thomas Scarlett Some venerable companies have adapted to the new realities of the 21st century economy better than others. One of the winners is 3MCompany (NYSE: MMM), formerly known as Minnesota Mining and Manufacturing. 3M created some of the most iconic brand name products in the American economy: Scotch tape, Post-It Notes, Scotchgard and others. But it shows no signs of being over the hill. The company has a significant presence in many industries, including health care, security and protection services, and communications. Its revenues and profits have grown with admirable consistency for decades, yet its price-to-earnings (P/E) ratio is only about 20. The market cap is $94 billion. With $31 billion in sales, 3M employs 89,000 people worldwide and has operations in more than 70 countries. 3M has grown through acquisitions as well as expanding markets. In April 2012, it acquired CodeRyte. In September 2012, it acquired the business of Federal Signal Technologies Group (FSTech) from Federal Signal Corporation. In November 2012, it acquired Ceradyne. 3M New Ventures -- the corporate venture arm of 3M -- announced an equity stake in Toronto-based Smart Energy Instruments (SEI), a move that will further accelerate SEI's efforts in developing electronic chipsets with high-precision, real-time monitoring capabilities for smart grids, as well as give 3M a bigger presence in the energy sector. The investment from 3M New Ventures comes as several existing stakeholders also bolstered their equity in SEI, including Venturelink Funds, ArcTern Ventures and the Ontario Capital Growth Corp. Together, the financing round, led by 3M New Ventures, totaled $5 million. Other details of the transaction were not disclosed. "We are honored that 3M is joining our team of investors," said SEI CEO Jeff Dionne. "We've hit several key milestones in our company's growth, and the utility market is now primed to take full advantage of our smart grid technologies. We see 3M as an important strategic partner to jointly develop and commercialize innovative solutions for utilities and electrical equipment manufacturers." Additionally, 3M will join 11-time Sprint Cup Series champions Hendrick Motorsports beginning with the 2015 NASCAR season when it will become a primary sponsor of driver Jeff Gordon and his No. 24 Chevrolet SS team. The new relationship will feature 3M as a primary sponsor in 11 Sprint Cup races annually and as an associate-level partner in all other events. The agreement covers the 2015, 2016 and 2017 NASCAR seasons. All five of 3M's business units, which comprise more than $31 billion in annual sales, will use the sponsorship in consumer promotions, product launches and business-to-business opportunities. The company has been increasingly involved in the expanding security system market: radio-frequency identification, high-tech tolls, license plate recognition and other new security tools. The market for touchscreens has exploded in recent years, as smartphones and other mobile devices have become an integral part of the daily round. 3M sells components for the touchscreens millions of Americans use every day, and it also makes touch displays that are geared toward more commercial or industrial applications that include everything from point-of-sale systems to casino gaming. A physical manifestation of the company's commitment to R&D is a large new addition to the company's Maplewood, Minnesota campus: a new $150 million R&D building that will replace two aging labs. The state-of-the-art facility should be completed by fall of 2015 and is expected to house 700 existing scientists and researchers, said 3M Chief Technology Officer Fred Palensky. The project will include a four-story R&D center dedicated to technology research for three of 3M's businesses: electrical and energy, safety and graphics, and industrial. 3M is constantly reinventing their own products to keep up with the changing marketplace, and also with new regulatory requirements. Scotchgard was reformulated to eliminate perfluorochemicals, and even the humble Post-It Note went through a redesign. The stock has been rising over the last 12 months, but no more than the market itself, and its solid profit-generating businesses indicate it still has some room on the upside. With a diverse array of well-established, nuts-and-bolts products and a long history of smart management, 3M is a strong candidate for a growth portfolio. It's a buy up to 152. Thomas Scarlett is an investment analyst atPersonal Financeand its parent websiteInvesting Daily. 100:1 returns on this entertainment megatrend Walt Disney is the king of destination entertainment. He's made millions of children happy. And he's made millions of their investor parents rich, too. Every $10,000 invested in Disney in 1971 is worth $1.2 million today. If you missed Disney's high-profit opportunity, not to worry. The next entertainment mega-trend is starting right now! It includes 1.1 million square feet of world-class shopping, dining, theater and more. It's just steps away from a major NASCAR speedway! It's the new Disney. If you're looking for that 100:1 return to secure your future, get our FREE REPORT. Buying Biotech 8/27/2014 By Jim Fink Here's an important trend in the investment world right now: the recent buyouts of small-cap biotech companies like Idenix (NASDAQ: IDIX) and Intermune (NASDAQ: ITMN). Why so many pharma deals? Merck, one of the world's largest drug companies in the world, has agreed to pay about $3.85 billion to acquire Idenix Pharmaceuticals. Idenix is the developer of an important drug for hepatitis C, a disease that affects millions and can result in liver failure. That purchase price is more than triple the closing price of Idenix shares on the preceding Friday. Idenix has never generated a profit, but its pharmaceutical portfolio is so promising that Merck was willing to pay a hefty premium to acquire the company. Around the same time, we learned that Intermune, a Brisbane, California-based company will also be gobbled up by a larger rival. Intermune has been developing drugs to address various lung diseases, including the often fatal pulmonary fibrosis. This attracted the attention of Roche Pharmaceuticals, a Swiss drug maker that already sells widely used medicines for cystic fibrosis and for severe asthma. Roche has announced it plans to buy Intermune for $8.3 billion, a 38% premium to its closing price. This trend will likely continue. Roche CEO Severin Schwan told the press that the deal "exemplifies the Roche strategy" of targeted acquisitions that match up with the salespeople and research infrastructure it already has. Lots of other top pharmaceutical managers are probably thinking the same way. Roadrunner Stocks has two biotech companies in the momentum portfolio -- ANI Pharmaceuticals (NASDAQ: ANIP) and Anika Therapeutics Inc. (NASDAQ: ANIK). We also have one in the value portfolio -- United Therapeutics Corp. (NASDAQ: UTHR). Any one of these could be an attractive takeover target for a larger company. More importantly, all have established strong track records of developing medicines that will ensure their profitability for years to come. For example, Anika Therapeutics is a pioneer in developing therapeutic products for tissue protection, healing and repair. Last February, the FDA approved Monovisc, Anika's single injection supplement to the osteoarthritic joint, used to treat pain and improve joint mobility in patients suffering from osteoarthritis of the knee. The company is profitable (24% return on equity), has 18% insider ownership, and no debt. Looks like a "quality" momentum stock to me! Also, ANI Pharmaceuticals is a biotechnology company that both develops its own proprietary drugs (e.g., female sexual dysfunction) and provides contract manufacturing services to other drug companies. The company merged with BioSante Pharmaceuticals in 2012. Valuing Stocks: Look for Predictable Earnings In How to Value a Stock Using the Income Statement, I discussed the conflict between (1) the theoretically-pure way to measure the value of a business as an ongoing concern -- i.e., discounting the company's annual free cash flows in perpetuity at an interest rate that accounts for business risk -- and (2) the practical difficulties of accurately estimating either future business risk or the company's annual cash flows over the next 10 years let alone in perpetuity. Given the practical difficulties of accurately estimating a multitude of future data points, a short-cut method that many smart investors use to value a stock is to limit the estimation process to a single number -- a snapshot multiple of a company's current earnings (or EBITDA or free cash flow or book value). On the surface, estimating a single number is easier than estimating multiple numbers, but the reality is that this distinction is somewhat illusory because several data "inputs" must be estimated in order to generate the single "output" multiple. Most important inputs are future earnings growth and cost of capital (i.e., business risk). Earnings growth may reasonably be estimated from past experience if the company's business is stable, but business risk is a slippery measure that can easily be overshot or undershot. Because of the inherent uncertainties in estimation, I previously wrote that: I would only consider using a P/E ratio on stable stocks with a prolonged operating history and a modicum of earnings-growth reliability. Earnings predictability simply means that a company's earnings have historically grown in a consistently stable pattern that is likely to continue in the future. In contrast, a 2008 study found that corporate earnings that are very volatile over the past five years -- jumping up and down haphazardly from one quarter to the next -- typically signal uncertainty and unpredictable earnings for five years into the future. Earnings volatility captures the effects of real and unavoidable economic volatility. Intuitively, firms operating in environments subject to large economic shocks are likely to have both more volatile earnings and less predictable earnings. The volatility of reported earnings also reflects important aspects of the accounting determination of income. One such aspect is the quality of matching of expenses to revenues. Poor matching acts as noise in the economic relation between revenues and expenses, and thus the volatility of reported earnings increases in poor matching. Poor matching is also associated with poor earnings predictability because the matching noise in reported earnings obscures the underlying economic relation that governs the evolution of earnings over successive periods. Earnings volatility not only reduces earnings predictability, but it also signals a company without a competitive advantage that has no control over pricing or a loyal customer base, but is vulnerable to the whims of a commoditized marketplace. A 2011 study found that the stocks of companies with high earnings uncertainty significantly underperform the stocks of companies with predictable earnings and that high earnings volatility "strongly predicts lower future earnings." This helps explain "the greatest anomaly in finance", where stocks with low betas (a measure of price volatility relative to a benchmark index) have historically outperformed high-beta stocks. Roadrunner's six-point safety-rating system awards a safety point to low-beta stocks because of this outperformance potential. This article originally appeared in the Small Cap All-Stars column. Never miss an issue. Sign up to receive Small Cap All-Stars by email. Refineries are Working Overtime Did you know that despite our energy boom, we have fewer than 150 refineries in America? That means one thing: They're working overtime. But they're not alone. There's another group of unsung companies all running at full capacity, too. And I've found the six best ones. They've already handed a select group of investors gains up to 511%. I'll give you their full profit stories when you click here. Go Global, But Don't Go Crazy 8/28/2014 DIVIDEND SPOTLIGHT New Best Buy Pick in Telecommunications By Richard Stavros At 7.48%, this U.K.-based communications company is the new Best Buy in my conservative portfolio (which is made up of 10 safety-rated stocks). With a solid base of over 100 million customers in Europe, they're well positioned to safely expand globally. They're conquering new markets by onboarding millions of customers in India, Turkey, and across Africa. I continue to watch U.S.-based Verizon (NYSE:VZ); more updates later. I don't currently recommend Spain-based Telefnica (NYSE:TEF), as Robert outlines below. My Best Buy is without a doubt the safest dividend in telecommunications -- find out more here. FEATURE INCOME ARTICLE Go Global, But Don't Go Crazy By Robert Frick Our credo here at Global Income Edge is you collect the best returns by going global---but by best we also mean relatively safe. Simply chasing the highest yields without weighing risks can land you in some shaky investments. For example, some single-country, exchange-traded funds have high yields, but you wouldn't want to own most of them because the countries' economies leave a lot to be desired. (These single-country ETFs own stocks that reflect an index of those countries' stock markets.) Take Spain. Just two years ago its "country yield" of more than 6% was leading the dividend pack. And even when Europe's economy in general, and Spain's in particular, started showing cracks from high debt, many of the country's companies with the highest dividends vowed to keep paying them. In some cases their dividends exceeded their profits. If you invested in a Spain ETF for dividends back then, you were begging to be gored, like running blindfolded with the bulls at Pamplona. The first big dividend domino to fall was Spain's communications giant, Telefnica, which suspended its dividend two years ago. Others followed, and while the Spanish stock market has largely recovered from double-digit losses in 2010 and 2011, the dividend payout has shrunk to a 2.82% trailing 12-month yield, as paid by the iShares MSCI Spain Capped ETF. Other countries with high yields today have much stronger economies than Spain's, but their markets aren't very diversified. Belgium, for example, often has a high country yield (it's currently 3.63%, based on iShares MSCI-Belgium ETF), but more than one-fifth of the country's stock market value is wrapped up in a single company: AB InBev. InBev, the world's largest beer brewer, has 25% of the global market, and beer will never go out of style. Still, if you're expecting the safety of diversification from a country fund you won't get much from Belgium. One country, though, pays a high yield and is just our cup of tea. The United Kingdom's country yield currently tops 6% (as measured by the iShares MSCI United Kingdom ETF, symbol: EWU). What we like about the UK is many of the safety features we use in choosing stocks for our Global Income Edge conservative and aggressive portfolios are baked into the UK stock market. In fact, two of the nine holdings in our conservative portfolio, GlaxoSmithKline and Vodaphone, are UK-based. The United Kingdom's economy is large (sixth-largest in the world), stable and well-diversified. Virtually all of its stock market's largest holdings are global in scope, meaning they can tap into emerging countries' growth. It benefits from being a financial intermediary between the East and West and is the second largest financial capital in the world (after the U.S., which, by the way, has a 1.9% dividend yield, based on the Standard & Poor's 500). We look for low-volatility stocks for our portfolios and the UK is a low-volatility country, being relatively stable compared to Europe and to world markets in general. Mutual fund rating company Morningstar calls the ETF a defensive holding based in part on this relatively low volatility and its relatively large portion of consumer defensive stocks. And the UK is a country with a tradition of companies that pay high dividends, which speaks to the sustainability of an ETF's dividend payout. Such stability, together with a high yield, comes with a price. And with the UK you shouldn't expect dynamic stock market gains. The ETF's five-year and 10-year average annualized gains are 10% and 6.5% respectively. That's about 2 percentage points less than the average country/region's return over the same period. But for investors looking for high dividends, high diversification and low volatility, the UK (via iShares MSCI United Kingdom ETF) is a buy up to $22. A Safer Approach to Global Income The prospect of investing abroad can be intimidating for many investors. That's why we've made it simple... every single global stock we list is available on a U.S. exchange. Not only does this guarantee that our stock picks easy to buy, but it also means that we can verify financial data with certainty. So don't let the word "global" scare you away from the high-yield dividend stocks you need. Earn phenomenal income from the U.S. and abroad... read our list of dividends. WEEKLY INCOME TRIVIA QUESTION Q: Is most of the world's seafood caught, or raised commercially? Know the answer? Send your response to: GlobalIncomeEdge@yahoo.com -- the first correct response will receive a free Global Income Edge T-shirt! The answer will be provided in next week's issue. Like the Computer Revolution in Business …All Over Again Happening before our eyes – one of the great investing opportunities of our generation. It's reminiscent of the years when IBM revolutionized U.S. industry. This one is still in the early stages. Hurry here. You are receiving this email at benjamart.ss.stock@blogger.com as part of your subscription to Investing Daily's Stocks To Watch, published by Investing Daily. To ensure delivery directly to your inbox, please add postoffice@investingdaily.com to your address book today. 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