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Tobacco giant Philip Morris (NYSE:PM) addressed investors at the Morgan Stanley Global Consumer Conference today. There were a lot of announcements coming out of the meeting and one in particular about the company adjusting FY13 EPS outlook sent the shares down close to 3% as of this writing. This article points out why this pullback might be a great chance for investors. Let us get into the details.

Share Price and Yield: Let us get the obvious but the most important factor out of the way first. With the stock trading at around $88, the current yield works to about 4.2%, which puts PM on par with Lorillard (NYSE:LO) in terms of yield. Lorillard has often been the highest yielding stock among big tobacco names recently but with its share price increase and PM's decrease, suddenly the two are yielding the same. Altria Group (NYSE:MO) of course still has a yield greater than 5% but the yield gap between PM and MO has also been coming down steadily in recent months.

Valuation: PM is often accused of trading at a rich multiple. This has sometimes been true, mainly because of its international exposure. The table below compares PM to 4 other well known tobacco stocks, including its global competitor British American Tobacco (NYSEMKT:BTI). The first 3 rows are fairly straight forward. The fourth row is something that we use often to break the tie between investments that look very close to each other on paper.

Cumulative rank is the average of a company's rank in all the categories. For example, PM was ranked #1 on PEG along with BTI and Lorillard but was ranked 4th on P/E, only above Reynolds American (NYSE:RAI). Having the 2nd highest growth prospects puts PM at a total of 7 (1 for the PEG, 4 for P/E, and 2 for growth). That gives PM an average rank of 2.3, which is the 2nd best in the table below. Lorillard is ranked 1 based on these valuation metrics but there is always the menthol cloud hanging over it.

(click to enlarge)

Continuous Insider Support: While PM's insiders have also been selling their shares like at most companies, one positive for investors has been the constant support of PM's Director and Fiat CEO Sergio Marchionne from 2010. He has also made 7 purchases of 1000 shares each so far in 2013. While this might not sound like a lot for someone of his wealth level, the fact that he hasn't sold a single share since 2010 speaks volumes about what he thinks about PM's prospects. We've covered Mr. Marchionne's purchases since 2010 in this article.

Entry Into E-Cigarette Category: It is pretty easy for a company to rest on its laurels, especially if you are a $140 Billion company that owns 15% of the international cigarette market (excluding U.S.). But PM has shown time and again that it plans to keep growing (Organic or otherwise). The latest indication of this desire is the announcement this morning that it is entering the E-Cigarette space in 2014. The U.S. E-Cigarette market is already a $2 billion industry and will soon be a $3 billion dollar machine. Yes, we know PM does not operate in U.S. but if the regulated (Smokeless or not) U.S. market grows up so fast, one can definitely imagine the expected growth throughout the world.

Just to give you an idea, e-cigarettes had just 1% of the U.S. market share in 2003, but has since doubled its market share every year. This report suggests there are already half a million e-cigarette users in France.

Technical Indicator: As mentioned in this article about AT&T (NYSE:T), it is very hard to find a stock (not a broken company) that is not overbought when the market is reaching all time highs. PM's Relative Strength Index (RSI) has entered the 30s, which is not far off from the oversold level.

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(Source: Nasdaq.com)

Conclusion: With a solid business that has a wide moat and international presence, PM's dominance has rarely been questioned. However, there have been issues raised about PM's high level of debt, strong dollar, and the general risks associated with cigarettes. Some of these are under PM's direct control and some aren't. But PM has taken steps to minimize, if not avoid some of these risks: like entering the E-cigarettes market and achieving its 2013 target of cost cutting by $300 million. Bottom line, this company knows how to operate and reward its shareholders. We recommend buying the dips by averaging in and see your dividends compound magically, while getting an increase each year in September.

Source: 5 Reasons To Buy Philip Morris Here