The old hen is still laying eggs
President Obama’s tax policy bombshell extended Thursday’s rally, yet the Federal Reserve’s plans for quantitative easing remain the cardinal?driver forcing a retest of the S&P 500’s April high near 1,200.
Federal Reserve Chairman Ben Bernanke’s plans to reinvigorate the U.S. economy is bad news for the U.S. dollar, but big American exporting conglomerates look primed to capitalize.
Overshadowed by high profile stocks like Apple and Amazon that are trading at all-time highs, major industrials have been a significant source of strength. Since the beginning of September, diversified conglomerates like United Technologies (UTX) and Honeywell (HON) are up 14.5 percent and 22 percent, respectively. Even if market leaders are stretching their valuations, one diversified industrial in particular has space to catch up, prodded by a push from the weakening dollar.
Despite the recent strength in the industrial space, 3M (MMM) has somewhat lagged the rally, primarily because of the strong volume breakaway gap down on October 28 in the wake of cutting its 2010.
Taking into account 3M’s revision, the fundamentals are still very strong for the Minnesota-based producer of products ranging from Scotch Tape to stethoscopes.
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Anticipating the slowdown in growth in the U.S. and western Europe, 3M is aggressively transitioning core businesses to higher growth emerging markets. Export strength should remain strong thanks to policies that will result in weakening the U.S. dollar. This, coupled with a technical push higher could help 3M fill the gap down and more. The stock is already well on its way to doing so.
After bottoming out near-term around $83.42 on November 1, 3M has bounced back 4 percent. A relative strength index rising above a reading of 48 suggests the stock is confirming a recovery from oversold territory, and 3M’s stochastics appear to have formed a rounding bottom out as well. 3M has already broken above the 10-day exponential moving average which can now be used as support as it had been during the September and October rally. If the stock is able to refill the gap, 3M may see if a retest of the October 25 high at $91.49 sticks.
3M also features one of the better annual dividend yields in the diversified conglomerate space at 2.4 percent. That beats United Technologies (2.3 percent) andDanaher (0.2 percent), and just trails Honeywell (2.6 percent).
The fundamental and technical picture looks good for 3M, and with Uncle Ben in their corner big U.S. exporters could get fat on overseas profits.
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