When the U.S. Federal Reserve opened the taps to buy bonds and to increase support for stocks, it forced the market to speculate. The COVID-19 spread is creating a panic for investors to buy companies that may thrive. But if the long-term prospects are poor, investors should ignore stocks like 3M (NYSE:MMM).
President Donald Trump tweeted that 3M will pay a big price by shipping N95 masks to foreign countries instead of the U.S. Publicly traded companies seek to maximize profits, so this selling decision makes sense. Besides, lowering the death rate, decreasing the spread, and protecting health workers and those on the front line indirectly benefits the U.S. The world is suffering together, so the U.S. will need to source masks elsewhere.
For investors, masks do not add enough to total sales to offset the decline in the rest of 3M’s business. The conglomerate continues to suffer from a slow pace of innovation. The stock is down 24% year-to-date but is still valued at 17 times earnings.
Clorox (NYSE:CLX) trades at a 28 times P/E on the notion that higher cleaning and bleach product sales will continue long after the coronavirus pandemic ends. Yet Clorox faces plenty of competition from smaller, more nimble companies ready to fill the cleaning agent space. Investors should avoid fad stocks and continue to demand deep value.
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