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Dow Blue-Chip 3M Co Surges on Coronavirus Demand, but Bond King Warns of Danger

Last Updated September 23, 2020 1:52 PM
Sam Bourgi
Last Updated September 23, 2020 1:52 PM
  • 3M Co’s stock rose 5% in pre-market trading on Tuesday.
  • The company reported better than expected earnings and revenue for the first quarter due to the upsurge in demand for personal protective equipment.
  • Beyond 3M and a few other ‘coronavirus stocks,’ analysts see little upside in the U.S. equity markets at this time. Jeffrey ‘Bond King’ Gundlach recently told CNBC he’s building a new short position against the S&P 500.

Shares of 3M Co (NYSE:MMM) rallied sharply on Tuesday after the company reported better than expected first-quarter results –defying a broad earnings downtrend on Wall Street.

The manufacturing conglomerate has been at the center of global demand for personal protective equipment in the wake of the Covid-19 pandemic.

3M Stock Rises on Strong Q1 Earnings Beat

3M’s stock opened nearly 5% higher on Tuesday, mirroring a bullish pre-market session for the manufacturing conglomerate.

3m co stock
MMM rallied 4.6% to $160.78 Tuesday morning. | Chart: Yahoo Finance 

The stock rose 4.5% on Monday, outpacing the Dow 30 index and broader S&P 500.

The Dow Jones Industrial Average opened more than 300 points higher on Tuesday and was on track for new six-week highs. The blue-chip index has now rallied in five straight sessions.

Even with the recent gains priced in, MMM is still down more than 15% from its 52-week high of $190.96. Unlike the broader market, 3M hasn’t made new all-time highs since October 2017.

Investors are bidding up 3M stock because the company reported first-quarter earnings and revenue that topped analysts’ forecasts. The company’s per-share earnings came in at $2.16 on revenue of $8.08 billion. Analysts were calling for earnings per share of $2.03 on sales of $7.91 billion.

3M’s personal safety unit, which produces the N95 respirator masks used to fight Covid-19, saw an upsurge in demand during the first quarter. The company also began doubling global respirator output to 100 million per month  and plans to double production again.

Beyond ‘Coronavirus Stocks,’ Outlook Remains Bleak

3M’s earnings report marks a significant departure from the dismal quarterly results released so far.

As of April 17, blended first-quarter earnings of S&P 500 companies was -14.5% , far worse than what analysts had predicted.

As the global economy grinds to a halt amid the ongoing health crisis, investors like Jeffrey Gundlach are building new short positions against the stock market.

In a recent interview with CNBC , the so-called ‘bond king’ said upside potential is limited in the current environment. He’s allocated half his portfolio to cash to hedge against future volatility.

Meanwhile, Goldman Sachs warned investors not to get too excited about the stock-market rebound because of its reliance on too few companies.

The S&P 500’s five largest stocks–Apple, Amazon, Alphabet, Microsoft, and Facebook–now account for 20% of the index’s total market cap . During the height of the dot-com bubble, the top five stocks represented around 18% of the S&P 500.

Without broader participation, the stock market is unlikely to see a sustained rally, especially in the current macro environment.

Disclaimer: The author holds no investment position in 3M Co at the time of writing.