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Tickers in this Article: AVY, MMM, MON, RPM, SPLS
Although it didn't generate a lot of attention, at the end of January, label maker Avery Dennison Corp. (NYSE:AVY) came out with a sobering earnings report. The company reported earnings per share (EPS) on an adjusted basis at 65 cents, compared to the previous year's fourth-quarter EPS of $1.08. The report also mentioned that revenue was down to $1.51 billion from $1.71 billion during the same period the previous year. These are discouraging numbers from what has historically been a solid company.

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Stuck Stock
The label maker's stock is stuck at its 52-week low of just over $18 a share, down from its height of $53.74. While the earnings picture is not rosy for the upcoming year, the company is still expected to be profitable. Moody's, however, was considering a downgrade, which points to the stock's riskiness. At the same time, 3M (NYSE:MMM), which specializes in industrial production as well as making post-its and tapes and is in the same sticky-stuff business as Avery Dennison, announced that its income fell by 37% for the quarter with equally bleak prospects for 2009. In response to this news, the stock price of MMM headed higher.

This suggests that investors see the similar results of muted earnings differently. In the case of 3M, its heft and hugeness seemed to give investors heart when they cheered the news and sent the stock price up slightly. Avery Dennison didn't get the same benefit of the doubt for its earnings and its stock price has continued its downward trend. Still, the stock is not totally unloved, and its followers and holders must be happy with the 8% dividend. The prospect that the leader, 3M, might just be putting in a floor here, could also be good for the AVY stock holders. This suggests that the bargain-basement status of the stock prices of 3M and Avery are clearly more a function of the business conditions and not so much a long-term commentary on their value.

Relative Strength, Relative Value
If ever there was a time to consider the relative value of companies' fundamentals, this current stock market suggests the time is now. The investor response to 3M was more appropriate, or at least more hopeful than the response to Avery Dennison. With so many companies getting pounded into negative earnings territory, companies posting any kind of profit in 2009 may begin to look attractive. In terms of business results, yesterday's lousy results might be today's good ones. While Avery Dennison was earning roughly $3 a share EPS annually the last few years, it is looking at less than $2 for 2009, with a hoped-for rise in 2010.

Even with the latest stock downturn, there's still a lot going for Avery Dennison. It still generates $6 billion in revenue in a business where there aren't a lot of pressure-label makers, and that is not its sole business. AVY is also involved in specialty products in addition to the office labels, tapes and graphics material it is so well known for. While it's often listed as a specialty chemical maker, like RPM International (NYSE:RPM), or in the same category as chemical giant Monsanto (NYSE:MON), whose agri-business in seeds and fertilizer chemicals doesn't at all overlap, Avery Dennison has stuck itself in a good niche with its consumer and office supplies. Even an office supply company such as Staples (Nasdaq:SPLS), which sells its own brand of labels, also carries the Avery Dennison line.

Strengths Going Forward
Despite the immediate difficulties on the earnings front, Avery Dennison has a lot of strengths going forward. It is a conservatively managed business with a strong brand in a sector that is not overrun with competitors. When such mundane items as labels and office supplies are hit during this economic downturn, it tells of how deeply this recession has penetrated the economy. Consumers, businesses, small businesses and small offices will eventually return to buying the Avery Dennison items and the company will be there whether it occurs in 2009 or 2010. Eventually, apart from the fluctuations in the stock market, the stock should also be a nice value play. (For further reading, see Industries That Thrive On Recession and The Impact Of Recession On Businesses.)

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