Philip Morris International Is a Strong Buy 27 comments
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A couple of months ago, I wrote about how much I loved Altria (MO), and how I believed that it was one of the best stocks that you could purchase. While I still think Altria is a great company and a good stock, I now have a new favorite tobacco 
company, and potentially a new favorite stock. Philip Morris International (PM) actually spun off of Altria in March 2008 to become its own entity, and I am very upbeat about the outlook for this relatively new company. Philip Morris manufactures and sells tobacco products strictly outside of the United States. Some of its most popular cigarette brands include Marlboro, Parliament, and Virginia Slims. The company’s products are sold in around 160 countries, and it continues to expand its global reach.
I love this company for many reasons, and I believe that its stock price has much more potential than Altria’s to move higher. Throughout the rest of this article, not only will I point out why Philip Morris is such a great investment, but I will also prove why it is a better investment than Altria.
The first aspect of Philip Morris that excites me is its growth opportunities. Philip Morris has the whole world to sell to, and this freedom to sell its products across the globe will ensure high growth for years to come. While the cigarette market has been shrinking in some markets, such as Japan, and smoking bans and higher taxes have lowered cigarette demand in other parts of the world, such as the European Union, Phillip Morris has the unique ability to move its operations out of these areas and focus on places where cigarette demand is increasing. Philip Morris actually saw its strongest revenue growth in the first quarter of 2009 in emerging markets. The company grew its revenue in the Latin America and Canada region by 28% compared to the same period a year ago, and revenue also grew in Eastern Europe, the Middle East, and Africa by 6%. As the middle class in these developing nations become wealthier, they will have more money to spend on cigarettes, thus boosting the prospects for Philip Morris’ profits down the road.
Because Altria sells its products strictly in the United States, it does not have the ability to focus on selling in new and growing markets. Actually, cigarette demand in the U.S. has been steadily decreasing by 3% for a while now, thus leaving Altria with less and less demand for its core product every year.
Not only does Philip Morris have the ability to grow by expanding its operations to new regions and emerging markets, but the company also has a lot of room to boost its popularity and gain more market share. While Altria has a commanding 50.7% of the domestic cigarette market, Philip Morris only controls about 16% of the market for cigarettes outside of the United States. Philip Morris International is still a relatively young company, and I believe that it can greatly increase its market share up from 16%, while Altria has pretty much peaked at 50.7%. One of the main reasons that Philip Morris will have the ability to continue amassing market share in the international markets is because there are a lot fewer regulations for advertising cigarettes internationally. Altria, on the other hand, cannot promote its brands because advertising for cigarettes is illegal in the United States.
The topic of government regulation is another reason why I like Philip Morris more than Altria. The United States continues to enforce massive taxes and strict regulations on the tobacco industry. It seems like almost every month a new law against smoking is passed in the United States, and just recently, the U.S. imposed an additional 61-cent tax on every cigarette pack sold. There are also constant litigation fears that keep investors uneasy about investing in Altria, as the fear of a massive lawsuit against tobacco companies always seems to be in the process. Foreign governments, on the other hand, are usually more lenient towards the tobacco industry, as they realize that cigarettes have the ability to bring in a lot of tax revenues. So, Philip Morris has more freedom to advertise, it is vastly less concerned with lawsuits, and if any government wants to start getting tough on cigarettes with anti-smoking laws and higher taxes, Philip Morris always has the option of just ending operations in that country and moving into a new region that seems more profitable. Altria has no such option.
Another crucial factor to Philip Morris International’s future success has to do with the U.S. Dollar that is bound to become weaker as the U.S. faces more inflationary pressure. Basically, because the U.S. Government is printing so much money to keep our country out of a depression, many believe that there will eventually be too many dollars in the system when the economy rebounds. This excess supply of dollars in the system will make each dollar worth less compared to foreign currencies. And, because Philip Morris makes its money in foreign currencies and books its profits in U.S. Dollars, the company’s profits will be larger as a result. So, if you believe that inflation is a very real possibility in the future, which I definitely do, then investing in a company that does all of its business overseas is a very wise choice. Altria, on the other hand, has no exposure to foreign currencies, and thus will not be able to take advantage of the currency fluctuations. Instead, Altria will probably suffer due to the upcoming inflation, as domestic cigarettes will continue to become more expensive, and demand will continue to decrease as a result.
The positives for Philip Morris seem to never end. The company has extremely high cash flow, which will allow it to continue expanding without worrying too much about debt levels. The stock also pays a very high and very safe 5.05% dividend. Without including currency fluctuations, sales for the first quarter of 2009 rose 6.3% and the company’s EPS also grew 12.7% compared to the first quarter of 2008. The company was able to improve its profitability and obtain its highest quarterly revenue ever by raising the prices of its products. It is clear to see that Philip Morris has been unaffected by the global recession, as it continues to raise prices and boast higher revenues and profits as a result.
With such great growth prospects, looming inflation for the U.S. Dollar, and the great dividend and cash flow, Philip Morris seems to be a definite buy. It is currently trading at $42.81, and I believe it is very cheap right now. Having said this, I think an overall market pullback is on the horizon, so I would probably wait until it hits $40 to buy some shares. This is one of my favorite stocks, and I believe it would be wise to buy some shares and hold on to them for a long time.
Disclosure: Long PM and MO.
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It's all about is this a stock to own and make some money? Hey we are capitalists - making money is what we do. Hold the editorials and give some reasons to buy the stock.
These days it is harder than ever to market cigarettes to lower income, semi-literate working class Americans, who, by the way, are an easy marketing nut to crack. Especially when selling addictive chemicals. Thankfully, the ad industry is not so similarly shackled abroad, so yes, Phillip Morris is an excellent investment as their stuff is an easy sell to the less educated, worldwide. Like hooking rats on crack, as some of the smokers out there probably know. The habit sticks to you like skunk spray.
Agree with you 100%.
You make the most sense.
Same thing with casinos, and race tracks, so many people
losed their butts there.
On May 22 09:44 PM anarchist wrote:
> Smokers don't give a fig for other peoples rights like the right
> to breath air not polluted with cigarette smoke. Second hand smoke
> is deadly yet smokers and the tobacco companies have fought to stop
> or gut non-smoking laws such as those in California. NO I don't
> agree that they "have the right" to screw up their (and maybe my)
> lungs and suffer heart disease if my tax dollar has to in any way
> subsidize their stupidity.
Paul Price recently wrote a SA article urging people to buy Monsanto (MON). I agreed with him on the ground that MON is, by one reckoning, the world's most evil company -- worse than tobacco or banking. P.P. didn't like that. C.T. might not either. As "Dividend Machine" almost points out, the more evil the company, the better it is as an investment. See
ethicalinvesting.com/m.../
and many other sources.
Too much fat in Burger King. It clogs the arteries.
No Pepsi it rots your teeth.
No GM products because they pollute the air I breath.
You get the idea you morons....
The states issued cigarette bonds and sold them to citizens to bring in their revenue from the Master agreement faster.
"Paul Price alias the newsboy, in his obsession to comment negatively on every one of my posts, has made sure all my 600 posts on here EVERY single one has received a thumbs down. Perhaps its because I am financially independent at age age 43 because of my obession in buildinga dividend machine with Mo and Pm."
He may be right about Paul Price. He knows him better than I. But there could be another reason for a thumbs down.
"I am baised because I achieved financial independence through owning this stock over the past 16 years and reinvesting the dividends. It was over 97% of my portfolio for from 1993-2005."
A single stock was over 97% of your portfolio for 12 years? I would never recommend that anyone take on that much risk with virtually their entire portfolio.
I don't care about smoker right or non-smoker, this is investing. Full discloser: i am an ex-smoker (1.5packs/day for 15 years) and i own MO and PM. I am also a Rx ... go figured ... lol.
On May 22 11:14 AM dividendmachine wrote:
> In 1957 if you invested $10,000 in every S&P 500 stock and reinvested
> dividends the #2 stock was ABT which would yield you 12.8 million
> dollars in 2003 46 years later or 16.5% compounded annually
>
> the #1 stock was Altria where your 10,000 would have been over 46
> million which is 19% compounded annually
>
> By no means do I think that the 19.5% will be dupicated but my purchase
> in 2000 has gone up close to 20% annually despite the Dow being lower
> now then when i bought the stock
On May 26 08:35 AM dividendmachine wrote:
> Michael delaney that is certainly a fair post and I will address
> it
>
> In 1993 I invested in Altria because it was very diversified and
> it had experienced a large drop due to Marlboro friday 3 months before
>
>
> It owned beer food and cigarettes and they had 72 brand names with
> sales over 100 million dollars including Kool Aid, Miller beer,Jello
> as well as Marlboro and 12 brand names with over a billion dollars
> in sales.I felt I was diversified
>
> After doing research I found from 1925 to present day it had returned
> over 16 % annually when reinvested dividends were taken into consideration
>
>
> Since 1957 it had returned over 18% when reinvested dividends had
> been taken into consideration
>
> As billionaires Charlie Munger and warren Buffett have said for years
> a concentrated portfolio is actually less risk if the person who
> is investing ,is competent and diligent enough to find the right
> stock
>
> I did not feel then and still dont feel today that smoking could
> be made illegal given the addiction by the smokers which is only
> matched by the addiction of state and federal government for the
> tax dollars dollars.
>
> Altria when I bought it,was the US Treasury largest customer,and
> I felt with the massive federal debt and state budget crises ,they
> would not be able to put it out of business
>
> Wheni first bought the stock the dividend yield was 6% , Since the
> dividend was rising by about 9% annually, I felt that it would double
> in 8 years and by reinvested dividends I would have recouped my original
> investment within 10 years,which actually happened 2 years faster
>
>
>
>
> Many investors like Mr Price had abasket of safer stocks such as
> CFC at 30, AIG at 45, YRCW at 35,MER at 66 ,Legg mason at 55 and
> his stock of the year SLM at 38.That diversified portfolio is down
> over 75%
>
> At the end of 1999 I sold a condo i owned at a nice profit and in
> January 2000 I invested the entire proceeds in Altria at 23 dollars
> per share witha dividend yield of about 8.4%
>
> I did not even consider KO JNJ MSFT WMT GE because they all had PE
> ratios over 40 while MO's PE was 9
>
> I figured I would recoup my investment even faster this time,given
> my dividend yield was higher
>
> 2 months later it dropped more than 20% and had a dividend yield
> of about 12% when i sold my BMW and bought a $1200 car and bought
> more stock
>
> In this supposed lost decade when the Dow is down over 20% in the
> past 9 years.That investment in Altria has more than paid for itself
> in dividends and has spun off KFt and PM. The combined appreciation
> of the stock is over 200% and that 23 dollar investment in jan 2000
> is paying me over 20% annually of the original investment after I
> swapped out of KFT last fall at 28 and bought more Mo at 15
>
> Now I suppose you can call me lucky ,but the dividend machine I built
> that has made me achieve financial independence in my opinion minimized
> risk while maximizing profits
>
> In 2005 I wrote a book where i suggested BUD at 41.50 and BRK at
> 2730 were worth buying
>
> Despite a the Dow being almost 30% lower in that time span BUD was
> bought out at 68 and Brk is up in that time span
>
> It is Mr Price and yours and every other persons right to challenge
> and give a thumbs down to my posts
>
> But in over 600 comments Mr Price has given 99% of them a thumbs
> down ,even one where i agreed with his selection of WMT
>
> Since 1900 Jeremy siegel has found that 97% of the Dow's gain was
> reinvested dividends
>
> The risk in buying stocks is not about diversification but instead
> in those who buy stocks with insufficent dividends
>
> Those who buy low div stocks are betting on appreciation and according
> to history that in itself is risky
>
> Please feel free to ask me more questions.
>
> The purpose of this forum is to promote debate so that all of us
> can continue to learn about the fascinating but difficult game of
> allocating capital.peace
On May 23 12:17 PM EX-AD-MAN wrote:
> People who are "free" to smoke should not expect free gov't health
> care when their lungs start coming up in mouthfuls of black goo.
>
>
> These days it is harder than ever to market cigarettes to lower income,
> semi-literate working class Americans, who, by the way, are an easy
> marketing nut to crack. Especially when selling addictive chemicals.
> Thankfully, the ad industry is not so similarly shackled abroad,
> so yes, Phillip Morris is an excellent investment as their stuff
> is an easy sell to the less educated, worldwide. Like hooking rats
> on crack, as some of the smokers out there probably know. The habit
> sticks to you like skunk spray.
On May 22 09:51 AM PastTense wrote:
> Cigarettes are very dangerous products. I believe the rest of the
> world will come to see this and adopt the same kinds of restrictions
> as are found in the United States.
Also if you disagree with smoking, then make money investing in PM and use the dividends to start a charity or non-smoking campain. This is the beauty of capitalism, you can allocate capital freely.