An industrial opportunity

Featuring Chad Morganlander

Chad Morganlander, Portfolio Manager at Washington Crossing Advisors, presents his short- and long-term trade on 3M. He explains his analysis, and lays out the trade, in this interview with Justine Underhill. Filmed on June 7, 2018.

Published on
12 June, 2018
Topic
Technology, Trading, US Economy
Duration
7 minutes
Asset class
Equities
Rating
20

Comments

  • RS

    Robert S.

    16 6 2018 03:44

    0       0

    Any rally in this stock is counter trend and be quick to get out if it pops to 215 (gap fill). Below the 50, 200 and 400 day simple moving averages and presently every time it get back to the 50, it gets rejected. There are a lot of people trapped in this name who thought they were buying the dip and can't wait to get to break even and sell. That overhead supply needs to be absorbed before this is ready for a campaign. If you want to be in the industrial space, better to pick something displaying strong relative strength compared to the sector and compared to SPX and with stacked moving averages trending up (i.e. BA, UNP, FDX, CSX, NSC, FTV). Like a carpenter, don't sand against the grain.

  • NI

    Nate I.

    13 6 2018 02:34

    3       1

    10 year sales growth of 2.2% (less than just simple price inflation would allow). 10 year tangible book value declined from $3.93/share to -$3.17/share (thank goodness shareholders can't be billed). 10 year debt growth of 8.8% (hey! found something the 3M management is good at). Luckily 3M is in plenty of ETFs and index funds, so Chad is probably right that the share price will be going up right along side the rest of the debt zombies.

  • DS

    David S.

    12 6 2018 21:59

    0       0

    Trade Ideas interviews are getting better all the time. Thanks. Corporate pension funding, especially in developed markets, is important to address. In a revenue downturn, pensions can sink the ship. Pension obligations and funding shortfalls should be part of the standard checkoff list. DLS

  • DC

    D C.

    12 6 2018 18:43

    3       0

    "If you have a 3- 5 years, we think you can get a 9% aggregate total growth including dividends with 3M" So, that's less than 3% CAGR at best. Truly underwhelming.

    • DS

      David S.

      12 6 2018 20:52

      0       0

      You may need some singles and doubles at lower risk in your portfolio. DLS

    • DC

      D C.

      13 6 2018 05:03

      0       0

      DLS....yeah, if you need a middling performance industrial conglomerate value play...then CSL Carlisle CO has even better valuation metrics than 3M

  • KP

    Kyle P.

    12 6 2018 13:32

    3       0

    new member here. I am getting so much value in this series from the articulation of stop losses alone. therein lies the question for this trade. 3 elements were mentioned that would result in exiting the trade:
    Global recession
    China's hard landing and possible credit dislocation
    global growth slowing from 3.5% down to 1%

    at the great personal risk of sounding far too simplistic, how does one identify these 3 elements? Even global growth slowing to 1%. how does one measure that? thanks in advance for any advice.

    • RM

      Robert M.

      12 6 2018 14:20

      1       0

      You could google: global gdp growth. Recession can be measured as 2 consecutive quarters of negative gdp growth. A china hard landing is a steep fall in its gdp from the current ~6% levels down to low single digits or even slightly negative. This would most likely currently be powered by a credit dislocation given the high growth in its debt levels over the last 10 years, which is written up in various IMF papers etc.

    • SH

      Steve H.

      12 6 2018 17:51

      2       0

      Robert M. has already answered your specific question, so I'll waffle at a more general level. Risk management is a very personal thing. However, a couple of points do stand out about this piece when it comes to trade exits:

      1. For technical traders, the nearby low (minus some points to make room for stop runs) looks pretty clean. When and whether to trail is, again, a very personal decision but most technical traders would want to be protecting profits on the way up. How tight you go will depend upon your holding timeframe and just how the price action develops.

      2. Where a fundamental trader would put a stop is even more of a personal decision. I certainly agree with Mr. Morganlander's assessment that any of the three highlighted negative events would likely have an adverse impact on a company such as 3M. But tying any of them to an exit decision is going to be tough simply because you'd want to see how the market and the stock responds at the time - and what the central banks do in response to deteriorating markets. I'm not a fundamental investor, so better-informed folks might disagree, but I would think deciding initially how much you're prepared to risk as a % of the trade amount and then trailing up in line with your comfort zone might be one approach. Tying an exit to very vaguely defined and often lagging macro-indicators looks to me like a recipe for becoming a buy-and-hold investor, whether or not that is the intention underlying the trade.

      3. A third approach would be to combine the two methods - enter because you like either or both the fundamentals and the technicals, keep raising your stop to each new major downside technical level (e.g., reaction lows on pull-backs in the uptrend), then exit if your sense of the fundamental or technical tone of the stock turns negative.

    • KP

      Kyle P.

      12 6 2018 20:01

      0       0

      I thank you both for these explanations. I would note that my stop for global GDP figures was worldbank.org which did not align with the 3.5% rate beginning my confusion.

  • PU

    Peter U.

    12 6 2018 12:32

    11       0

    much better music intro!

    • SH

      Syed H.

      12 6 2018 17:29

      0       0

      Why wasn't this posted sooner?