Altria (MO) is one of those “sin stocks,” as it owns cigarette maker Philip Morris.
Speaking of sin, have you seen the price for a pack of smokes? Five to six bucks or more. Now I don’t look at cigarette prices every day or even every week, but that seems awful high to me. Who can afford these things?
Anyway, back to Altria. Sin stocks are supposed to do well in recessionary times, but the jury’s still out on MO.
The stock is trading where it did in mid-November. And it certainly hasn’t outperformed the broader market.
On the charts, the stock is enjoying a lift from the overall market strength, and has poked above its 50-day moving averages this week.
That’s certainly a plus, but the shares are now staring up at the $17 level, an area of chart congestion for the past five months. I don’t think the stock has the inherent strength to break above this resistance.
>
The main problem with MO, as I see it, is a high level of optimism toward the shares.
Call volume has picked up of late, pushing the put/call ratio down to an annual low. And nine of 12 covering analysts rate the stock a “buy,” with seven of those being of the “strong buy” variety.
That puts added pressure on MO to impress with its earnings report, which is scheduled for July 22.
Speaking of earnings, analysts expect flat profits from a year ago. The company basically meets or beats by a few pennies, but performance after earnings has been lackluster to poor during the past three quarters — just another reason why MO needs to impress next week.
I tend to look skeptically at stocks that need to blow out earnings. It certainly can happen, but the odds (and this is an odds game) are getting longer.
I’d consider buying puts on MO ahead of earnings.
Don’t sit on the sidelines this earnings season. Get 12 Keys to Trading Earnings for Profits.
Jon Lewis is the co-editor of The Winning Edge trading service designed to help you make options profits around corporate earnings and other market events. For more information about Jon, read his bio here.
