Altria, formerly Philip Morris Company, has proven to be very astute and creative in their approach to the negative public perception of so-called "purveyors of death" represented by those engaged in the manufacture, promotion and sale of tobacco products in the U.S.
Marlboro, the company’s leading brand, has retained its position as the number one selling cigarette in the world, helping Altria hold its ranking as the number one tobacco producing company in the United States.
The use of tobacco, like the consumption of alcohol, is one of the counter cyclical behavior patterns of Americans. While a slumping economy causes consumers to cut back on the purchase and use of many goods and services, tobacco and alcohol continue to be used at pre-recession levels.
As a result, companies such as Altria (MO) and R.J. Reynolds (RAI) do not experience the loss of value which plagues investors in most other sectors of the economy.
In the case of Altria, an aggressive program of expansion in emerging economy countries has paid big dividends. The company has lessened its dependence on the tobacco usage patterns of Americans in the face of greater regulation and public distaste for second hand smoke. They have also refocused their attention on tobacco and alcohol through a series of divestitures and investments.
In 2008, the company sold its 80% stake in Kraft Foods (KFT). Earlier, Altria had acquired a 29% interest in SABMiller LLC, a London-based bottler and distributor of beer in 60 countries. SABMiller brands include Miller, Miller Light, Miller Golden Draft, Castle Lager and Grolsch. They are also one of the largest bottlers and distributors of Coca Cola products in the emerging markets.
The combination of tobacco, beer and Coca Cola at Altria has lessened the impact of the economic woes plaguing the world economies on the company. The focus on the emerging markets has also reduced the potential negative impact of continued legal and regulatory pressures on the company in America.
This focus has led Altria to the position of leading producer of beers in China, Russia, The Netherlands and South Africa, among others. And the Marlboro man has shown the resilience of a superstar in virtually every market in which he has been introduced.
Altria stock has traded in a narrow range during the last 12 months and is currently trading near its low for the period. Atria’s bonds are also trading at relative lows, with the company’s 7% coupon bonds due in 2013 recently trading at around 91.5, generating a yield of almost 9.2%.
At this price, investors are being fairly rewarded for the level of risk represented by the bond.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, visit www.InvestorPlace.com. James F. Dlugosch contributed to this article
