| This week’s stock analysis is 3M ($MMM) |
The 3M Company is a diversified technology company that operates worldwide. It has 4 major industrial divisions. Safety and Industrial; Transportation and Electronics; Health Care; and Consumer. They were founded in 1902 by five businessmen in Minnesota. The company has since amassed 72,000 employees across the globe with their headquarters still in Minnesota. They are currently worth $70 billion dollars. 3M’s adhesives are used in products like Post-it notes and Scotch Tape. Their electric tape is used by most major telephone companies, and they are a supplier for the electronics industry, making parts for LCD screens and DVDs. 3M also produces medical products, dental products, car care products, uniforms, and office supplies.
Over the last several years 3M has been embroiled in a massive lawsuit that threatens to bankrupt the company and it has weighed heavy on any positive outlook that management attempts to create.
A subsidiary of 3M, Aearo Technologies, manufactured faulty earplugs that have caused hearing problems in 230,000 people. While these lawsuits have been dragging on for several years, and were anticipated to hurt 3M, investors only received a clear picture of the full potential damage last month.
The lawsuit brings with it the potential for $100 billion in losses if all 230,000 litigants in the class action move forward.
For perspective, 3M’s market capitalization at the time of this writing is $77 billion.
The lawyers for 3M have setup a $1.2 billion trust to settle the lawsuit, but recently the company filed Aearo Technologies for bankruptcy to avoid paying additional damages. The amount of $1.2 billion set up as a trust is not enough when considering how much potential settlements could be worth. You can read the press release here.
To further complicate the matter, the bankruptcy court has denied 3M’s attempt to halt further lawsuits, and an additional lawsuit is seeking to attach 3M dividends and prevent 3M from creating a spinoff healthcare business.
Investors know that 3M is a company with an incredible track record for increasing dividends. In just the last three years, they’ve returned more than $14 billion to shareholders in form of dividends and share repurchases – not bad when you think about it!
It is against this litigation background that 3M has been embroiled that this stock study has been written. The risk in 3M is very real as it potentially stares at bankruptcy soon and these legal risks cannot be overlooked any longer. For 64 years 3M has been a dividend champion on Wall Street and those days may be soon ending.
In this weekly stock study, we will look at and analyze the following indicators and metrics as are our guidelines which dictate our behavior in deciding whether to buy, sell, or stand aside on a particular stock.
- Wall Street Analysts’ Estimates
- 52-week high and low boundaries
- Best Case – Worst Case Analysis
- Vantagepoint A.I. Forecast (Predictive Blue Line)
- Neural Network Forecast
- Daily Range Forecast
- Intermarket Analysis
- Our trading suggestion
We don’t base our decisions on things like earnings or fundamental cash flow valuations. However, we do look at them to better understand the financial landscape that a company is operating under.
Analysts Ratings
The first set of boundaries which we explore in our stock study is what do the professionals think who monitor the stock for a living. We can acquire this information by simply looking at the boundaries that the top Wall Street Analysts set for $MMM. This initial set of boundaries provides us with an idea of what is expensive, valued, and cheap.
Based on 14 Wall Street analysts offering 12-month price targets for 3M in the last 3 months. The average price target is $132.93 with a high forecast of $160.00 and a low forecast of $120.00 . The average price target represents a 10.34% change from the last price of $120.47 .
Despite its legal troubles, these Wall Street Analysts still feel that the stock is UNDERVALUED. My expectation is that as more information about the lawsuit becomes known that Wall Street analysts will re-evaluate their forecasts.
52-week High-Low Chart
Where the rubber meets the road as far as analysis are concerned is looking at the charts and evaluating where the asset stands in relation to its 52-week highs. As counterintuitive as it may sound, great stocks tend to consistently make new 52-week highs. While many on Wall Street prefer to buy low and sell high, strong trends require a trader to learn how and when to buy high and sell higher. One of the simplest ways to evaluate a stock is to look at some long-term monthly and weekly charts to be able to zoom out and see the big picture of the trend. Some of the greatest traders in the world use longer-term monthly charts to determine trend analysis.
Over the last 52 weeks $MMM has traded as high as $180.91 and as low as $115.98. Its most recent close was $120.47.
Whenever we trade, we always pay attention to where we are in relation to the 52-week trading range. $MMM is currently trading at its 9th percentile on the annual 52-week chart.
The important markers are listed here:
The annualized volatility of $MMM is 58.7% which is extremely high. This is calculated by simply dividing the last close by the annual trading range. What this simple metric tells us is that based upon its current volatility it would be Statistically within the normal bounds for $MMM to trade 58.7% higher or lower over the coming 12 months.
Looking at Volatility in this regard provides us solid expectations of future price action. We contrast this perspective by always analyzing a 10 year chart to confirm these volatie expectations.
The 10-year chart allows us to see the long-term price journey that $MMM has had.
Best Case – Worst Case Analysis
We then like to realistically look at how the market rallied and declined over the past year to determine a perspective on most recent real volatility for $MMM. To do this we simply measure bottom to top rallies that had no lower lows, and peak to bottom declines that had no higher highs. This allows us to quickly see what the best case and worst case of market conditions looked like and provides a very realistic set of expectations moving forward.
Here is the worst-case analysis:
Followed by the best-case analysis:
When you evaluate these rallies and declines the most straightforward conclusion you can make is that $MMM has had a very tough year and it has not been able to hold on to rallies for any significant period. We look in that in context to evaluate the potential of $MMM as a trading vehicle.
Next, we want to evaluate $MMM is in comparison to the performance of the major stock market indexes which we have greater familiarity with and then look at the drawdowns of the stock over the past year to get a worst-case scenario idea for any conclusions that we might reach when we trade this asset.
You can see $MMM performed substantially worse than the broader market indexes.
This type of layout allows us to see that 3M has been about 3 times as volatile as the broader market.
We would expect this type of volatility to continue. This means that massive drawdowns peak to trough should be considered very normal moving forward.
Vantagepoint A.I. Forecast (Predictive Blue Line)
Using VantagePoint Software and the artificial intelligence, traders are alerted to trend forecasts by monitoring the slope of the predictive blue line. The black line is a simple 10 day moving average of price which simply tells you what has occurred in the market. The predictive blue line also acts as value zone where in uptrends traders try to purchase the asset at or below the blue line.
In studying the chart below, pay close attention to the relationship between the black line and predictive blue line. All that the black line tells you is what has occurred. It tells you where prices have been and what the average price over the last ten days is.
The predictive blue line, on the other hand utilizes that Vantagepoint patented Neural Network and Intermarket Analysis to arrive at its value. It looks at the strongest price drivers of an asset through artificial intelligence and statistical correlations to determine its value.
Whenever we see the predictive blue line move above the black line, we are presented with an UP-forecast entry opportunity. These are highlighted by UP arrows on the chart.
Whenever the predictive blue line moves below the black line, we are presented with a DOWN forecast. More importantly, there is no guesswork involved. Traders know where the value zone and trend are always.
Over the last 4 months there were 3 a.i. trend forecasts on $MMM.
#1 SHORT for 10.23%
#2 LONG for 9.89%
#3 SHORT for 16.75%
Total possible gains from utilizing the a.i. forecast were 36% over the last 4 months.
The clarity and effectiveness of these trend forecasts is how Power Traders embrace artificial intelligence to stay on the right side of the right trend at the right time.
Anyone who has been following the 3M saga might simply choose to focus on the Down forecasts.
Fine Tuning Entries with The Neural Net Indicator
At the bottom of the chart is the Neural Network Indicator which predicts future strength and/or weakness in the market. When the Neural Net Indicator is green it communicates strength. When the Neural Net is red it’s forecasting short term weakness in the market.
We advocate that Power Traders cross reference the chart with the predictive blue line and neural network indicator to create optimal entry and exit points.
A Neural Net is a computational learning system that uses a network of functions to understand and translate massive amounts of data into a desired output, consistently monitoring itself and improving its performance.
Power Traders are always looking to apply both the neural network and A.I. to the markets to find statistically sound trading opportunities. We refer to this as a “double confirmation” setup and look for the predictive blue line to slope higher and to be confirmed by the Neural Net at the bottom of the chart. In the world of technical analysis, trend confirmation refers to the verification of momentum in a given market trend. This is typically done through the use of statistical techniques. While trend confirmation does not guarantee success, it does provide traders with important quantitative probabilities that can help to improve their chances of making profitable trades. For this reason, trend confirmation is an essential tool for any technical trader. By double confirming trends, traders can minimize their risk and maximized their chances of success. By requiring two different indicators to line up, traders are effectively increasing the quantitative probabilities that their trade will be successful. While it is by no means foolproof, double confirmation will reduce risk and improve the chances of success for technical analysis traders.
Neural networks are a type of artificial intelligence that are used to predict future events by learning from past patterns. By analyzing past events and utilizing pattern recognition and their market impact, neural networks can learn to identify patterns that may indicate how the market will react to future news. This information can then be used to make trades that capitalize on expected market moves. Neural networks are also commonly used to identify price patterns and support and resistance levels. By studying past price action, neural networks can learn to identify recurring patterns that may provide clues about where the market is headed next. This information can be used to make trades that aim to capitalize on expected price movements. In addition, neural networks can be used to predict volatility and measure risk-reward ratios. By understanding how these factors have affected the markets in the past, traders can use neural networks to make more informed trading decisions in the future.
The arrows on the following chart isolate all of the occurrences when a double confirmation signal occurred.
We advise Power Traders to cross reference the predictive blue line with the Neural Net for the best entry opportunities. Observe how the slope of the predictive blue line has remained positive from the time earnings were announced.
You can see in the chart above how the Neural Net offered several opportunities of double confirmation to Power Traders, when the predictive blue line and the Neural Net aligned with the same forecast. These instances provide extremely high probability trading opportunities to exploit the trend.
VantagePoint Software Daily Price Range Prediction
One of the powerful features in the Vantagepoint A.I. Software which Power Traders use daily is the Daily Price Range prediction forecast.
This forecast is what permits Power Traders to truly fine tune their entries and exits into the market.
Here are some important metrics to consider:
- The average daily trading range over the entire year has been 2% of the closing price .
- The average weekly trading range over the entire year has been 4.93% of the weekly closing price .
- The average monthly trading range over the entire year has been 11.8% of the monthly closing price .
Despite these huge volatile swings the Vantagepoint A.I. daily range forecast provides traders with exacting precision as to where to buy and sell.
A predicted daily trading range can be a useful tool for traders when making decisions about how to trade a stock. The predicted low and predicted high can give traders an idea of where the stock price is likely to fall or rise during the day. In addition, by considering the probability of reward and the probability of loss, traders can calculate the expected return from a trade. By taking all these factors into account, traders can make more informed decisions about how to trade a stock.
What is the most important feature that traders are concerned about? Traders need to know where to enter and exit a market. VantagePoint provides this answer with exacting precision. Every day the Daily Range forecast is updated to provide insight to anticipated price action.
Intermarket Analysis
What makes the Vantagepoint Software extraordinary is its capacity to perform Intermarket analysis and to find those assets which are most statistically interconnected and are the key drivers of price.
Studying the charts can always provide objective realities in terms of locating support and resistance levels which become noticeably clear on a chart. But we live in a global marketplace. Everything is interconnected. The billion-dollar question for traders is always what are the key drivers of price for the underlying asset that I am trading?
These intangibles are invisible to the naked eye yet show extremely high statistical correlations.
Small changes in Interest rates, Crude Oil Prices, and the Volatility of the dollar amongst thousands of other variables affect the decisions companies must make to survive in these challenging times. Trying to determine what these factors are is one of the huge problems facing investors and traders.
There is excellent value to be had in studying and understanding the key drivers of $MMM’s price action.
By doing so you can often see which ETFs are most likely acquiring $MMM as well as uncovering other industries which affect $MMM price movement.
This can be invaluable information because it allows a trader to locate other opportunities and see a listing of the ETF’s that are also buyers of $MMM. This knowledge is how other trading opportunities are often uncovered in their embryonic stages.
Correlation analysis is a tool that traders and hedge funds use to anticipate future price movements of an asset. By analyzing the correlation between two assets, traders can calculate the probability of reward and the probability of loss for a given trade. This information can then be used to make informed decisions about when to enter and exit a trade. While correlation analysis is not perfect, it can give traders a significant edge in the market by helping them to identify opportunities with a high probability of success.
Suggestion for Traders
The massive class action lawsuit filed against 3M and its subsidiary Aearo Technologies, alleging that the company sold faulty hearing aids under the brand name Combat Arms earplugs is threatening the viability of the company. The earplugs are believed to have caused damage to the hearing of those who used them, and the plaintiffs are seeking damages of up to $100 billion. 3M has denied any wrongdoing, but the case is still pending. If the plaintiffs are successful, 3M could face bankruptcy.
Long term investors have been liquidating their holdings and this has put additional selling pressure on 3M.
The case is being closely watched by the business community, as it could set a precedent for other companies that are facing similar lawsuits.
The chart is volatile and based upon the litigation backstory we favor looking at trades on the short side whenever the a.i. forecast becomes negative.
Seasoned traders could sell calls or buy put options as well.
When a stock cannot hold onto gains and falls in price faster than it rises, it means that bears are in control. More bears than bulls in the market can lead to downward pressure on stock prices. When this happens, it becomes harder for stocks to make sustained gains and easy for them to give back any gains they do make. As a result, it becomes more difficult to be optimistic about the market and stocks may become more volatile.
When analyzing a stock, there are several basic common-sense indicators that can be used to anticipate future price movements. One of the most common indications that the outlook for a stock is bearish is when it regularly makes new 52-week lows. This suggests that the current downtrend is likely to continue, as investors are continually selling the stock at lower and lower prices. Another sign that a stock is bearish is when it fails to make new monthly highs. If a stock is unable to rally and reach new higher prices, it is likely that it will continue to decline. Finally, new lower lows pn the daily chart also suggest that a stock is bearish. If a stock repeatedly makes new lows, it is likely that the current trend will continue.
3M at the present time is wrestling with a massive downtrend that favors it continuation moving forward. Management of the company is trying to settle litigation so that this trend can be reversed.
We opt to focus on short selling strategies on 3M until this lawsuit is resolved. Watch the a.i. and pay close attention to the trend forecast.
We will re-evaluate this analysis based upon:
- Wall Street Analysts’ Estimates
- 52-week high and low boundaries
- Vantagepoint A.I. Forecast (Predictive Blue Line)
- Neural Network Forecast
- Daily Range Forecast
- Intermarket Analysis
Let’s Be Careful Out There!
Remember, It’s Not Magic.
It’s Machine Learning.
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