August 16, 2022, Honeywell International Inc. (NASDAQ:HON) and 3M Company (NYSE:MMM)
As these two industrial powerhouses continue breaking out, they sit as the best stocks to buy now.
The market closed higher on Monday (August 15, 2022), continuing the Wall Street rally. As inflation and recession fears appear to dissipate, at least temporarily, the Dow Jones gained 152 points (0.45%) after dropping nearly 180 points earlier in the session. The S&P 500 added 0.3% and looked to extend its longest weekly win streak since 2021, while the Nasdaq gained 0.48%. As the market continues its uptrend, industrial powerhouses Honeywell International Inc. (NASDAQ:HON) and 3M Company (NYSE:MMM) are up 20+% in the last month and sit as the best stocks to buy now.
As well-run conglomerates that may have already withstood the potential worst of inflation, 3M and Honeywell are amid red hot breakouts. The best part is that their rallies came despite recent earnings reports that weren’t all that earth-shattering!
3M and Honeywell are about as pure of plays on the industrial sector as you can find. What makes them so unique is how diversified and strategic their operations are. Investors, for example, beyond just pure numbers, are cheering Honeywell’s aerospace segment and 3M’s spin-off plans.
Both enterprises are additionally the best stocks to buy now because they offer outstanding shareholder yields. MMM most notably has increased its dividend for 65 years in a row.
Despite widespread recession worries, these companies continue to prove that they are too big to fail. Read on to see what else they offer as the best stocks to buy now.
Honeywell International Inc. (NASDAQ:HON)
A recent Mizuho price target points to a double-digit upside for this already skyrocketing industrial conglomerate.
Honeywell is a prominent industrial conglomerate that built itself into a juggernaut through powerful operations and an acquisition strategy. Today it sits as one of the best stocks to buy now because of its diversified operations that continue to expand worldwide.
Honeywell boasts business segments in Aerospace, Building Technologies, Performance Materials & Technologies, and Safety & Productivity Solutions.
Out of all of Honeywell’s business segments, aerospace is generating the most buzz with the world reopening to pre-pandemic-like travel. Honeywell’s aerospace sales have also bolstered its revenue growth more than its other business segments, with the likes of Airbus selecting Honeywell to produce its upgraded flight management system. You can find Honeywell’s products inside any and every type of aircraft. Honeywell provides propulsion engines, environmental control, electric power systems, radar, and data and software applications outside your run-of-the-mill aircraft parts.
So with such stable and diversified operations, it shouldn’t be a shock to see HON rocket 20.86% in the last month since touching July 14, 2022’s lows.
Its Streak of Beating Quarterly Earnings Estimates Approaches 5-Years With Mounting Growth Signals
Honeywell reported earnings and revenue on July 28, 2022, and marked marginal year-over-year increases and analyst beats. EPS came in at $2.10, topping consensus estimates by $0.07, while revenue came in at $8.95 billion compared to the projected $8.67 billion.
Moreover, this continued an almost 5-year streak of topping earnings expectations every quarter since October 2017. The Company also shook off economic pressures and inflation and saw a 12% growth in total orders
Perhaps that’s why HON’s earnings could grow 12% in the coming year while net income may expand 7.2%.
Strong Cash Flows With Profitability, Efficiency, and Dividends
First and foremost, when discussing Honeywell’s fundamentals, you have to mention its strong cash flows. Although the Company may have more debt than ideal, its robust cash flows can sufficiently cover interest payments. Its 2.8% free cash flow yield is solid as well.
Additionally, management is aggressively buying back shares. Last quarter, the Company executed $3.2 billion in stock buybacks and could do an additional $4 billion worth during the remainder of 2022
The Company also boasts strong margins indicating efficiency and profitability, such as its
Honeywell’s outstanding 6.5% shareholder yield and 1.95% dividend yield are fundamental drivers of why this firm is one of the best stocks to buy now. It’s increased its dividend for 12 straight years and most recently at a 7.26% 3-year CAGR. With its 53.48% payout ratio expected to fall to 40.37% next year, the dividend could continue growing by 5.4% at an 8.1% 5-year CAGR.
The Technicals Point to Even More Bullish Indicators
On the technical side, Barchart sees many short-term, medium-term, and long-term BUY signals. The stock research site was sure to highlight the following:
- 20 Day Moving Average
- 20 – 50 Day MACD Oscillator
- 20 – 100 Day MACD Oscillator
- 50 Day Moving Average
- 100 Day Moving Average
- 150 Day Moving Average
- 200 Day Moving Average
It also sees more upside in its future with it closing past its first resistance point of $201.82.
A Surging Stock With an Increasingly Higher Upside
Based on Tipranks data, Honeywell has minimal analyst upside at face value. 13 Wall Street analysts offered 12-month price targets for Honeywell International in the last 3 months, and its $202.67 average price target represents a limited upside.
However, based on the activity of several analysts since mid-July, not only is its street-low price target of $194.00 irrelevant. Its average price target is too.
Mizuho Securities notably gave HON a street-high price target of $225 on July 18, 2022, representing an 11.24% upside from August 15, 2022’s $202.26 close.
Other analysts have similarly bullish price targets well above the average.
- Deutsche Bank- $211.00
- Bank of America- $210.00
- Cowen- $205
- Citigroup- $222
- Barclays- $210
HON’s year-to-date low and high are $167.35 and $221.89, respectively.
3M Company (NYSE:MMM)
65 straight years of dividend increases come with the territory when you’re a financial powerhouse like this stock.
For much of 2022, the MMM stock was in free fall. It got so bad for this industrial empire that by July 5, 2022, the stock was almost 31% below its highs. Since then, the stock has rallied 20.61% and continues to see momentum while keeping a forward P/E ratio under 15.0x.
So why, with 3M so sensitive to economic cycles and its bottom and top line declining for two straight quarters, is it one of the best stocks to buy now? As an industrial force since 1902, it has the proven fundamentals, operations, and efficiency to withstand whatever happens.
With inflation finally showing signs of cooling and all those recession talks starting to quiet, the stock could continue this rally, especially as investors continue cheering its radical restructuring.
Investors Aren’t Cheering Muted Earnings Growth- They’re Cheering Spin-Offs
3M announced its Q2 2022 earnings data on July 26, 2022, and they weren’t anything special on the surface. EPS came in at $2.48 and only beat analyst estimates by $0.01. Revenue came in at $8.70 billion, as expected. Both earnings and revenue also declined year-over-year.
Underwhelming? Perhaps. But, investors see 3M’s long-term spin-offs as a more significant catalyst for it being the best stock to buy now.
3M is a diversified and prominent industrial conglomerate with business units in Safety and Industrial, Transportation and Electronics, Health Care, and Consumer Goods until this point.
Now, it’s undergoing a dramatic transformation, and investors appear to be highly excited. It previously announced a spin-off of its food safety business targeted to close by September 1, 2022. It plans to spin off its Health Care business segment by year-end 2023.
Why investors are so excited about this is that spin-offs have the potential to create shareholder value by enabling two different companies to focus on their core competencies. At the same time, the previous parent company still has a stake in affairs. For instance, although 3M is spinning off its health care unit, it will still keep a roughly 20% stake that it says will monetize over time.
Strong Shareholder Yields and a Dividend That’s Increased for 65 Straight Years
It’s not easy to function like a well-oiled machine when you’re the size of 3M and have your hands full with so many industrial sectors. It speaks volumes that 3M produces everything from post-it notes to N95 masks and still has strong enough fundamentals to provide significant shareholder and dividend yields.
First, MMM has a robust 5.0% free cash flow yield and excellent margins like a 44.5% gross margin, 19.1% operating margin, and 29.4% ROCE.
But, the Company’s shareholder yield and dividend consistency make it the best stock to buy now. It has an 8.3% shareholder yield and a 3.95% dividend yield, which alone is impressive. What’s truly eye-popping is that the dividend has increased for 65 straight years. Consistency like this doesn’t happen by accident. When you’re a company that thrives on putting a premium on providing consistent and increased value to its shareholders in the form of dividends for over six decades, you’re doing something special.
The best part is the dividend growth shows no signs of stopping and could continue expanding at a 5.9% 5-year CAGR.
Technical BUY Signals Keep Appearing
Barchart notes that MMM’s 20 Day Moving Average, 20 – 50 Day MACD Oscillator, 50 Day Moving Average, 100 Day Moving Average, and 150 Day Moving Average all signal MMM is a BUY.
Based on where the stock is trading relative to its support levels and resistance points, MMM could very well continue its rally. It could have plenty of upside in its future with it yet to touch possible resistance points of $153.03, $153.81, and $155.33.
Don’t Believe the Pessimism- A Credit Suisse Target Sees More Upside
TipRanks appears to be relatively bearish on MMM’s analyst upside based on 11 Wall Street analysts who offered 12-month price targets for MMM in the last 3 months.
However, its street-high price target of $160.00 represents a 5.62% upside from August 15, 2022’s close and is perhaps the best way to judge MMM based on recent analyst activity from the likes of Credit Suisse. On July 27, 2022, the investment bank boosted its price target to precisely that figure from its initial $157.00 forecast.
With the way MMM has performed as of late, coupled with catalysts mentioned before, there’s a likely chance that other analysts will start following Credit Suisse’s lead and provide some MMM price upgrades of their own.
MMM’s year-to-date low and high are $125.60 and $181.78, respectively.
