You can be forgiven for scratching your head more than once on Altria Group (NYSE:MO). Even in the best of circumstances, Altria stock is a controversial investment. As one of the biggest tobacco companies in the world, its products are known the world over. However, the company’s addicted consumer base makes it public enemy number one for anti-smoking advocates.
But today, MO stock faces its biggest challenge in memory. Once a fierce competitor to the burgeoning vaporizer and e-cigarette industry, Altria Group changed its tune. They figured if you can’t beat them, join them. And late last year, the company bought a 35% stake in Juul Labs, a popular vaping device.
At the time, the deal made sense. Increasingly, smoking became less popular, especially among the youth. In turn, enthusiasm for vaping skyrocketed. For starters, vaping is cheaper than smoking. After an initial outlay for the device, users purchased vape liquids, or e-liquids as they’re popularly known. This platform is typically reasonably priced and lasts longer than several (expensive) packs of combustible cigarettes.
Because Altria didn’t have a ready-made answer, buying a large stake in the biggest rival in the space was really the only move.
But of course, in late August, circumstances became very ugly for the Altria stock price. Once their prized possession, Juul quickly devolved into ground zero for the vaping crisis. A mysterious outbreak of alleged vaping-related lung illnesses rippled through the nation. In September, President Donald Trump weighed in on the issue, suggesting a flavored vape ban.
What once had such promise for MO stock was now turning into a nightmare. Yet its recent bullishness suggests a bottom may be in.
Luckily for Altria Stock, the Vaping Crisis Has Peaked
On Halloween, Altria will release its anxiously awaited third-quarter earnings report. With macabre fascination, some analysts have wondered what kind of bloodshed will be in store for MO stock.
I don’t begrudge this thought process. Based solely on what I hear from the news, I wouldn’t be too hot on the Altria stock price myself.
However, what these headlines overlook is that over the past few weeks, the vaping crisis has started to peak. Below is a timeline of the lung illness cases:
- On Aug 31., 2019, the media reported 215 illnesses and one death
- On Sep. 6, these stats jumped to 450 illnesses and five deaths
- On Sep. 11, the Centers for Disease Control downgraded the illness count to 380 illnesses, but the death toll increased to seven
- On Sep. 19, the count increased to 530 illnesses and eight deaths
- On Sep. 26, the media reported 805 illnesses and 12 deaths
- On Oct. 3, 1,080 illnesses and 18 deaths were reported
- On Oct. 10, 1,299 illnesses and 29 deaths were reported
- On Oct. 17, 1,479 illnesses and 33 deaths were reported
Finally, at the latest update on Oct. 24, the stats increased to 1,604 illnesses and 34 deaths. Although these cases are terribly tragic and represent a PR nightmare for Altria stock, here’s the reality: the worst is probably over for the embattled company.
Mathematically, the vaping illness and death stats show a severe deceleration in new cases. Between Aug. 31 and Sept. 26, the illness count increased by 274%, while the death count increased by 1,100%. However, in the roughly one-month period between Sept. 26 and Oct. 24, the illness count increased by 99%, and the death count by 183%.
Tragic? Yes, but thankfully the cases are declining, which is also good news for MO stock.
Another Reprieve for MO Stock
And now that the math is turning favorably for the Altria stock price, so too are recent headlines. According to the latest report from the CDC, fatal vaping illness cases often involved THC, the psychoactive cannabinoid.
But I highly doubt that THC is the culprit. After all, people have smoked or used THC in a variety of ways for possibly thousands of years. If inhaling smoke from THC-laced materials caused mass-scale fatalities, we wouldn’t be talking about cannabis legalization today.
What this latest disclosure reveals is that most of the illnesses are related to illegally-sourced or modified vapes. Since THC use is still against federal law and most state laws, this leads to a reasonable conclusion: people are mostly getting sick from black market vaping products.
While Altria is hardly a “feel good” story, it is a legal one. That distinction should help catalyze a recovery in Altria stock once this vaping issue finally fades away. From what we’re seeing, that day could come sooner than the naysayers may have thought.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.