As we entered 2014, the consensus point of view was that owning Philip Morris International Inc. (PM) made a lot more sense than owning the domestic cigarette manufacturer Altria Group Inc (MO).
In the U.S., the smoking rate was dropping and cigarette smokers were forced out into the cold. Internationally, smoking is much more socially acceptable and the cigarette industry is still something of a growth market. Investors who used Portfolio Grader to focus on the numbers have profited from the fact that the story has not played out as expected.
Both PM and MO were in “sell” territory coming into 2014, but as the year went on, conditions improved at Altria while Philip Morris lagged behind. Philip Morris stayed at a “sell” ranking for the first none months of the year and was upgraded to just a “hold” back in October. PM stock remains a “hold” today. MO stock was upgraded to a “hold” in April, a “buy” in July and a “strong buy” in August as conditions improved for Altria.
Altria continues to dominate the U.S. cigarette market with more than 50% of the market share. Although the market is shrinking, MO stock still generated more than $18 billion in revenue in the first nine months of the year and recorded profits of $3.8 billion. Much of the profits went to MO shareholders in the form of dividends and stock buybacks. Altria has a goal of paying out 80% of adjusted and diluted earnings per share as dividends.
In July, Altria’s board authorized a new $1 billion stock buyback plan that is expected for completion by the end of 2015. In the third quarter, Altria repurchased 6.4 million shares of its common stock at an average price of $42.87 for a total cost of about $275 million.
In August, MO increased the payout by 8%, and over the past five years, that payout has grown by 8.5% annually. At the current price, Altria yields a comfortable 4.16%. So, MO stock remains an A-rated growth and income stock.
The story, as told by Wall Street, very much favored Philip Morris, but as the numbers developed during 2014, Altria was clearly the better stock to own. Investors who bought MO stock when Portfolio Grader upgraded the shares this summer have seen solid gains so far and should see more ahead from Altria’s A-rated stock.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
