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3M (NYSE: MMM) has faced challenges in recent years -- and not just in the legal realm where it faced a number of lawsuits. The industrial conglomerate also has a track record of mediocre growth and margin erosion, which doesn't position it as a high-quality stock pick.

However, investing should be more about a company's potential than its past performance, and from that perspective, there's a compelling value case to be made for buying 3M stock now. But this opportunity may not suit all investors. Here's what you need to know to decide if it suits you.

The value case for 3M stock

Perhaps it would be better to outline what 3M isn't before explaining what it is. 3M is a value stock, but not a deep-value stock. In other words, it's not the high-risk/high-reward investment many aggressive investors seek. Neither is it a high-quality company with a strong moat that you can buy and forget about for 10 years. Nor is it a growth company that will shoot the lights out with rapidly rising revenue.

Thankfully, the company has also been able to put much of its legal headaches behind it with settlement agreements in place over the combat arms earplugs and PFAS issues.

Instead, 3M looks undervalued, and it has several possible catalysts coming that could result in the market awarding it a valuation expansion, which would lead to solid returns for shareholders. If you are the kind of investor looking for value stocks with the potential to generate 15% returns, 3M is for you. Here are the aforementioned potential catalysts.

A new CEO

Former L3Harris CEO William Brown took over as 3M's CEO on May 1. That external hire signaled the willingness of the board to enact change at the underperforming conglomerate. And one person can make a difference; just ask investors in GE under Larry Culp or shareholders of Illinois Tool Works under Scott Santi.

The appointment of Brown has excited at least one Wall Street analyst -- highly regarded Nigel Coe of Wolfe Research, who notes that Brown has a reputation for improving margins and efficiency. Those are precisely the areas 3M needs to work on right now.

The dividend cut will help

As most investors likely know by now, 3M cut its dividend this year, but that was actually good news. It still pays a solid dividend that currently yields 2.8%. Moreover, the move is freeing up cash for Brown to invest in growth efforts or in restructuring the company.

Wall Street expects 3M to generate $3.6 billion in free cash flow (FCF) annually over the next three years. That figure is around $6.40 per share, which would easily cover the current $2.80 per share in dividends and still leave a couple of billion in FCF resources for Brown to work with.

Removing Solventum from the equation

This might be a controversial opinion, but I see 3M's former healthcare unit, Solventum, as a challenged business. As previously discussed, management spent time and made multibillion-dollar acquisitions and disposals to restructure it for growth. Nothing worked to improve its growth rate. The April spinoff of Solventum (which involved making $7.7 billion in cash payment to 3M) was a net positive in my view.

3M's ongoing restructuring

Brown will bring new ideas, but 3M already has a substantive restructuring program underway. That plan entails making substantial job cuts, streamlining corporate centers and management layers, simplifying its supply chain, and adjusting its marketing model in countries that are less important markets for it. In addition, 3M is cutting back its consumer portfolio by 5% to drop less profitable products.

The plan seems to be working, and management believes it's on track to raise the adjusted operating margin for continuing operations from around 18.7% in 2023 to between 20.7% and 21.45% in 2024.

End markets are picking up

Brown will also be helped by improvements in 3M's end markets. Management expects two of its three segments -- safety & industrial, and transportation & electronics -- to report organic sales growth in 2024. It expects sales in the third segment -- consumer -- to decline due to weakness in consumer discretionary spending.

The overall result should allow 3M to report organic sales growth in 2024 and potentially build on that recovery in 2025, particularly if interest rates are lower by then.

A stock to buy?

These positive catalysts could lead to the market taking a more optimistic view of the company's valuation. Based on the forecast for $3.6 billion in annual FCF, 3M is trading at about 15.6 times its 2024 FCF, a valuation that implies some upside potential.

All told, 3M looks undervalued. If some of these catalysts result in better earnings momentum, then the stock could appreciate. As such, it will suit value investors looking for companies with upside from potentially positive news and better execution.

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

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.