Industrial and manufacturing conglomerate 3M Company (MMM), has seen shares lose nearly a quarter of their value over the past year. One trader sees a further decline in the weeks ahead.
That’s based on the March 31 $30 puts. With 18 days until expiration, 7,134 contracts traded compared to a prior open interest of 112, for a 64-fold rise in volume on the trade. The buyer of the puts paid $2.60 to make the bearish bet.
Shares recently traded for about $105.50, making this an at-the-money trade. Given that shares have just hit a new 52-week low, a drop to $105 would mark a further drop lower.
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3M has had a rough year, with revenues down 6 percent, and earnings down 60 percent. Plus, the company is facing a number of lawsuits related to discontinued products, which could impact future earnings by billions of dollars.
Action to take: Shares are reasonably valued at 13 times forward earnings, but may get cheaper in the months ahead given the legal overhang. That said, shares now yield 5.6 percent thanks to the drop in the stock over the past years. With a payout ratio under 60 percent, there’s room for more dividend increases ahead.
For traders, a rebound is possible as shares are heavily oversold. But for the short-term, the trend is down. The March 31 puts could deliver mid-double-digit gains in the days ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.