Investors Divided on 3M’s Future

3M Company (NYSE: MMM) shares experienced elevated volatility as shares hover near a seven year low. MMM November option implied volatility of 45 is above its 26-week average of 30 according to Track Data. This suggests that larger price movement may be in the future. Investors are cearly divided as to the direction of the conglomorate with the stock falling sharply but analysts confident in the future of the firm.

3M Company beat its earnings expectations last quarter on strong international results, which bucked the negative trends dominating Wall Street. Sales came in a bit behind analyst estimates, but the company beat predictions on its bottom line. With American demand slowing, the company has relied on foreign markets to support its growth. Ultimately, the company lowered its outlook slightly, predicting 2008 earnings between $5.40 and $5.48 per share.

Analysts also remain extremely bullish on the stock. Goldman Sachs commented that, “the high-quality results from 3M this quarter were impressive on both what we saw and what we did not see.” However, investors may be more in tune with the CEO who noted that the company did see some signs of slowdown toward the end of the quarter in late September and noted that the current challenges will be a tough period for everyone. These contradictions are causing the volatility in the stock seen recently.

Investors betting on a turnaround at 3M may want to consider purchasing long-term call options. The January 2011 $60 callsare trading at just $10.40. This means that for $1,040 down, investors can have the right to purchase 3M stock anytime between now and January 2011 at $60 per share. So, if 3M were to rise to $75 per share, these options would have returned $1,500 or a 44.2% return on investment versus a 25% return on the $6,000 investment in the underlying.

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