Healthcare investors will soon get a new stock they can invest in. 3M (NYSE: MMM) is in the midst of spinning off its healthcare business, and the stock is set to go public on April 1. Called Solventum, it will trade on the New York Stock Exchange under the ticker symbol SOLV.
The healthcare business is one of this big conglomerate's faster-growing segments, and it could present an enticing option for investors next month. Is the new stock one that you should consider adding to your portfolio?
Solventum's key details
Solventum's name comes from two words: "solving" and "momentum." It's supposed to emphasize the company's goal of continuing to innovate and come up with new and improved products. Medical devices will play a key part in its future growth, but Solventum will also give investors a way to benefit from expanding in other markets, including oral care and health information systems, making it a more diversified investment option than other healthcare stocks.
In 2023, 3M's healthcare business generated $8.2 billion in net sales and an operating profit of $1.6 billion, resulting in an impressive operating margin of nearly 20%. Last year, the top line fell by 2.8%. But a key reason was due to divestitures, with 3M selling its dental local anesthetic business and splitting off its food safety segment a year earlier. Organically, the healthcare division expanded at a rate of 0.7% in 2023. And the year before that, its organic growth was 3.2%.
Why Solventum could be an attractive buy for investors
What's promising about Solventum is how diverse its operations are, because that could lead to various growth opportunities in its future. As part of a large conglomerate, it can be difficult for a segment to flourish and focus on its long-term potential. But as its own entity, there will be a greater emphasis for the business to expand. And with a global addressable market worth as much as $93 billion, there should be no shortage of growth potential for Solventum in the future.
The company projects that in the health information system division, its expansion rate will be between 6% and 8% through 2026. And even in its slower growing medical-surgical business, which includes its medical devices and products, revenue should rise between 3% and 5%.
While Solventum doesn't appear to have the makings of a fast-growing company, few in the healthcare industry fit that type of a mold. Last year, General Electric spun off GE Healthcare, and the fairly new healthcare stock has posted a 50% gain since then (even as the company's revenue only grew 7% in 2023). Solventum may not necessarily deliver such an impressive performance, but it's a reminder to investors that a business doesn't need to be forecasting high growth rates to be a good investment.
Should you invest in Solventum?
Solventum will be an intriguing healthcare stock to consider when it hits the market next month, but I would wait until the company has a couple of quarterly earnings reports under its belt before considering whether it's a worthwhile buy. At that point, the dust from the spinoff will have settled and investors should be able to get a good grasp of how the business is doing as its own entity.
This is a stock that is worth keeping an eye on, but it's not one that investors need to worry about buying right away.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.
