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Contrarian, macro, hedge fund manager, Emerging Markets
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Philip Morris International (NYSE:PM) has the world's leading seller of cigarettes outside of the U.S. with 15.6% of market share. Since the 2008 split with Altria (NYSE:MO), Philip Morris no longer needs to compensate for the declining popularity of smoking in America. Along with sound financials, Philip Morris International has excellent growth prospects in Europe, Latin America, and Southeast Asia where the population have gotten hooked on cigarettes.

The fundamental strength of Phillip Morris is its dominant position international smoking friendly markets. Excluding China which is dominated by a state owned tobacco company, Phllip Morris controls 27% of the world market. Without exposure to the U.S. markets, litigation risk is significantly lower than Altria and domestic cigarette companies. However, on the other hand, regulations in European markets have kept high barriers to entry against competition. Restrictions on advertising are believed to be a problem, but this simply reduces marketing costs and prevent competitors from making a name for themselves. In addition, cigarettes are a defensive play as a bad economy as quitting smoking does not have a proven correlation with losses of income.

Even with the recent run up of its stock price to near $70 per share, the stock is still not overvalued. With a forward P/E ratio 13.96 and a PEG of 1.83 the stock is not dirt cheap, but still not overpriced. The dividend yield is also high at 3.93% and solid of profit margins of 11.26%. However, the financial indicator that stands out is its 26% return on investment capital that highlights the company's efficiency. However, PM's high debt/equity ratio of 3 may hint at a sharp pullback if the stock price turns around. Overall, with dominant market position and strong financial growth, I recommend buying the stock and expect the stock to rise to about $80 plus profits from dividend payouts.

Disclosure: I am long PM.

Source: Philip Morris Captures Tobacco Addicted Emerging Markets