Up 30% This Year and With Plenty of Room to Run, This Blue Chip Stock Is a Value Investor's Dream

While this year's hot investing theme has been anything artificial intelligence (AI) and data center related, there's always room for a good old-fashioned value stock, and that's exactly what 3M (NYSE: MMM) offers. The stock is up almost 30% year to date, and there's plenty of upside potential left. Here's how and why 3M has quietly, but significantly, outperformed the S&P 500 this year.

The investment case for 3M

One of the tenets of value investing is the potential for value creation when an underperforming, yet otherwise powerful, company is restructured for growth. It's a compelling case, not least because it doesn't necessarily rely on help from the economy. In other words, buying the stock doesn't require an investor to pick out winning sectors in the economy.

That was the proposition that investors faced when Bill Brown took over as CEO in May last year. It's fair to say his first 18 months have been successful, and investors will be delighted with the 70% increase in the stock price since he took over. And none of it comes in a period of any help from its key end markets, such as automotives, consumer electronics, safety, and the general industrial sector.

To be fair, not all of it can be attributed to Brown. For example, the previous management implemented significant restructuring actions, including job cuts, reduced management layers and facilities, and the spin-off of the underperforming healthcare business, Solventum.

Those actions helped expand 3M's profit margin and laid the groundwork for Brown to restructure the company into a more focused industrial company for long-term growth.

Bill Brown's game plan

Brown's plans involve a combination of ongoing operational improvements, such as better utilization of its machinery assets, improving 3M's on-time-in-full (OTIF) deliveries to customers, and reducing the days it holds inventory before selling it. Alongside these operational improvements, Brown is aiming to reintroduce a culture of innovation at 3M and return the company to its glory days of making new product introductions (NPIs) with differentiated qualities that drive sales volume growth and pricing power.

The NPI aim is particularly intriguing because it calls for a combination of what can be classified as operational improvements, and, thinking longer-term, the release of novel and truly differentiated products in existing businesses or innovatory products that open up new markets.

Image source: Getty Images.

3M's scorecard so far

The evidence so far is that Brown and 3M are making excellent progress. Starting with NPIs, the recent results saw 3M release 70 NPIs in the third quarter, bringing the total to 196 in 2025 so far -- an increase of 70% compared to the same period in 2024 -- and Brown expects to release 250 NPIs for the full year. While 80% of these NPIs come from what 3M classifies as Class III NPI (meaning they are more like "incremental line extensions," as Brown puts it) Brown thinks "you'll see more IVs and Vs come in into the pipeline into next year and into 2027."

In other words, the ramp-up in research and development spending (3M is committed to investing $3.5 billion in research and development from 2025 to 2027) will start to pay off as new product lines in existing businesses (Class IV) and novel products (Class V) come through the research pipeline.

As for the operational aims discussed above, Brown cited improving OTIF deliveries, which, at 91.6%, is "the highest on-time performance we've had in any quarter going back 20-plus years." Meanwhile, 3M's overall equipment effectiveness (OEE), a measure of how well equipment is utilized relative to its potential, is now 63%, up from 60% last year.

Image source: 3M.

What it means for investors

There's little doubt that 3M's improvement in 2025 is down to these improvements. Indeed, CFO Anurag Maheshwari noted that his expectation of another year of high-single-digit earnings-per-share (EPS) growth in 2026 stems from the belief that operational performance will "be the primary driver of earnings growth similar to this year."

This comes even as 3M prepares for a similarly tepid macroeconomic growth environment in 2026.

At which point investors are entitled to ask what 3M's earnings growth rate could look like when its end markets improve and the company can grow revenue closer to a mid-single-digit range than the 2% to 3% rate it's currently in. That could drive the stock higher in the coming years, as Brown's improvements at 3M are tangible and ongoing.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 3M. The Motley Fool recommends Solventum. The Motley Fool has a disclosure policy.