Would you buy Altria (MO) now?

[disneysteve]

Forget asset allocation and any other extenuating circumstances. Assume that it would be appropriate for your portfolio if you were to buy it.

Do you think Altria would be a good purchase now for a long-term investment?

[Broken Arrow]

Hey Steve. This is a rather unexpected. I didn't realize you are interested in individual stocks. Mind if I ask why?

Anyway, for you, I'll do what I can.

Altria is a holdings company that is in the midst of major restructuring and changes. Started out as Philip Morris, but then spun off a parent holdings company that fully controls Philip Morris, but now also holds John Middleton (that makes cigars), SABMiller (that makes the Miller beer product line, and even does bottling for Coca-Cola), and on a smaller note, Philip Morris Capital Corporation, which according to the website, "consists primarily of leveraged and direct finance lease investments leased to predominately investment grade credits." Interestingly enough, one of its 10-Qs reveal that PMCC leases aircrafts.

Altria has also sold off Kraft, which makes it clear that they want to return to its roots as a leading provider in tobacco products (and alcohol). On the other hand, Altria also has plans to "grow non-cigarette tobacco business" but exactly what they have in mind is not clear yet. And why did they get rid of Kraft then? Here is their website's page on Strategy for Financial Growth, but personally, I don't think it tells us much.

I think it's also worth noting that there has been a top level management change in as early as March 28, 2008, and the stock market didn't take the news well at all. That same day, the stock PLUNGED from $73 to $22! The company had to stave off the exodus by sending out a massive dividend (which is skewing the yield for the year).

Speaking of technicals, the key statistics are falling. Perhaps that's not surprising given all this change in progress, but the numbers still suggest a company that is not very healthy at the given moment. Massive sell-offs of assets to cover for larger liabilities, and with a falling cash flow, focusing in a shrinking market, it also suggests that they are not likely to keep up with their current dividend payouts.

I've also attempted to take a look at their 2008 shareholder meeting for this quarter, and the only concrete thing they've highlighted is the fact that they've moved the new headquarter to Richmond, VA. HUH?

Add it all up and you've got a company that once sold tobacco products, but realized that tobacco is a shrinking market. So, it started to diversify by buying up non-tobacco related companies such as Kraft and Nabisco. Then it sold Kraft (which Nabisco was integrated into) to return to their core business of selling tobacco. Hmm. More recently, they had a top level management change, the market reacted very negatively to that, and there isn't any forward fundamentals as to precisely how they will grow their business besides selling tobacco products with the commitment that they will eventually expand into non-tobacco businesses.... Hmm.

The only upside I see is that, as far as the tobacco products go, they've got the biggest market share around. So, for the short term, there will be cash flow even though that cash flow appears to be decreasing.... (Perhaps international sales will sustain it, I don't know.)

So, this is how I see Altria right now: I think it'd be best suited for gutsy short-term value traders looking for some dividend cash. Dogs of the Dow types. However, given the short-term declining health of the company, I wouldn't expect the dividend income to last for long.

As for the long term? Their basic plan is to keep selling tobacco (and beer), and they're hoping that, despite the shrinking market, they have enough market share to build up some equity to eventually expand to other businesses... but what that "other businesses" consists of isn't clear yet. So, I personally wouldn't buy into it for long-term right now. If you are still interested, I would take a wait and see approach to see if they can flesh out what strategy they have in mind for the future.

Again, that's just my $0.02 on it.

[disneysteve]

Thanks, BA. Though I do own some individual stocks in my portfolio, and get the occasional urge to take a risk on something, this question is actually being asked for someone else who asked my advice after her broker recommended she buy it. I just didn't want the whole, "Well what is your asset allocation and what does the rest of your portfolio look like?" kinds of questions. I wanted exactly what you posted, an analysis of the stock itself. Thank you very much.

I guess the related question is what you think of Philip Morris stock (PM) now that it has been spun off from Altria.

[StressLess]

Interesting to read about the relationship between Altria and SAB Miller. SAB Miller and Molson Coors are getting ready to merge. Here is someone who says the merger may benefit Altria:

24/7 Wall St.: Altria: The Hidden SABMiller & Molson Coors Winner (MO, TAP, BUD)

[maat55]

Thanks, BA. Though I do own some individual stocks in my portfolio, and get the occasional urge to take a risk on something, this question is actually being asked for someone else who asked my advice after her broker recommended she buy it. I just didn't want the whole, "Well what is your asset allocation and what does the rest of your portfolio look like?" kinds of questions. I wanted exactly what you posted, an analysis of the stock itself. Thank you very much.

I guess the related question is what you think of Philip Morris stock (PM) now that it has been spun off from Altria.

In this case, I would look at the moral aspect also. With MF's it's hard to not invest a little into something you would deem immoral, but to invest directly into a possibly deemed immoral company outright would be questionalbe.

Like anyone, I want to invest to win, but I draw the line at investing outright in harmful companies or comodities. I'm not judging anyone for what they invest in, just stating my limits. Sometimes you have to step back and remember that it's not just about the buck. IMO.

[Broken Arrow]

Gee Steve, you're putting me to work on a Saturday.

Well, as mentioned previously, I don't think tobacco itself is a great long term prospect, though for shorter-terms, I think it should be fine.... PM as a separate entity has only been spun off recently, so there is not a lot of data to go by. That said, the tentative data shows that the company is healthy enough, it enjoys the largest domestic market shares, has some the best brands out there, and international sales remain strong....

In time, I do think tobacco is a risky bet though. For example, we still don't know how the new management at Altria will interact with Philip Morris'. We know the domestic market is shrinking, and I do think it will be foreign governments will eventually reign in on tobacco with tighter regulations....

Frankly, were I to buy into Altria somehow, I'd rather go after SABMiller directly (even though that's a foreign company). Miller is still a strong brand, and I think alcohol is a safer bet. Or better yet, go after the spun off Kraft.

The food industry has been hit by rising commodity prices, but when you think about it, that's an industry-wide affliction and not because... Kraft specifically is a bad company. I do think the market has slightly over-reacted to the rising food prices, and while some luxury foods may decline, consumers will never stop buying staples. And with what I think is an unfairly negative reaction to the food industry, it could also present a good value buy opportunity.

As always, my $0.02.

[moneybags]

I guess the related question is what you think of Philip Morris stock (PM) now that it has been spun off from Altria.

I think Altria spun them off to get away from all the lawsuits against PM. I would check the status of those lawsuits before investing in PM.

[tripods68]

I was just researching this stock the last few weeks. Altria is a great Company. I bought and sold MO in the past. I considered MO as my "five wise-man" stock because of its high dividends yields and linear stock appreciations for past 10 years. The stock price just came down from high 70s/low 80s due to dividends payout back in March. I sold back in 2005 and now looking to buy again at $22 per share which is really a bargain. I remember buying this stock at $30 and selling at $46 @ 500 shares. The people that buys this stock are people who are looking for long term price appreciation and dividend payouts. Good luck

[humandraydel]

I think it's also worth noting that there has been a top level management change in as early as March 28, 2008, and the stock market didn't take the news well at all. That same day, the stock PLUNGED from $73 to $22! The company had to stave off the exodus by sending out a massive dividend (which is skewing the yield for the year).

March 28th was the day Phillip Morris International was spun off, so the drastic reduction in MO's share price is just adjusting for that. There is no "massive sell off of assets to cover larger liabilities" - Altria still owns the domestic part of PM. Altria's financial health is fine - they just approved a $7.5 billion buy back and expect to pay $1.16 in dividends for 2008 which is about 5.25% yield based on the current price.

With the recent spinoffs of PMI and Kraft, Altria has lost some potential for growth, but they should continue to print money - cigarettes are cheap to make and they have a loyal customer base which gives them pricing power. PMI has better potential for growth.

Overall, I don't think Altria is a bad investment at all. I might question someone buying it because their broker suggested it though - why not just go the easy route with index funds?

[Broken Arrow]

Thank you for the correction and additional input.

[LivingAlmostLarge]

I wonder though long term what is the true market share of tobacco? I noticed that even among younger generations and asking europeans and asians that they are decreasing smoking not just for health reasons but mostly vanity.

Smoking ages you prematurely! So even with large market share are we moving away from it?