Summary: Yesterday the Dow finished just a smidgin away from all-time highs. Altria Group Inc. (MO), parent company of Philip Morris USA, the nation's largest cigarette maker, has been its best-performing stock over the past six years, going from $24 in 2000 to its current $76.97. Its climb has been fueled by a string of legal victories: MO's strategy was simple: Appeal every losing judgement. And it has worked, resulting in reduced plaintiff awards, and in disallowing suits to be treated as class actions. The victories have been setting the stage for a spinoff of MO's 88%-owned Kraft Foods Inc. (KFT): the U.S.'s biggest food company. The spinoff would allow Kraft to trade without apprehension over the long-term prospect of the tobacco business -- and that has investors drooling. Separating the two was considered impossible as long as MO was under the shadow of serious litigation; it could have been construed as transferring assets out of cigarette plaintiffs' reach. Some investors predicted the split would be announced at the company's Oct. 25 board meeting. Now it looks like the wait may continue: This week a federal court granted class-action status to tens of millions of smokers of "light cigarettes" -- exposing tobacco companies to a fresh $200b legal claim.
Related links: Full WSJ article • Light Cigarette Suit Could Exact a Heavy Price on Tobacco Companies. Background: Altria Stock Jumps on Judge's Ruling Against Smokers (MO) • The Dow Then and Now -- Gainers and Losers • Barron's: MO's huge gains make it one of Wall Street's most respected companies
Potentially impacted stocks and ETFs: More tobacco stocks: British American Tobacco (BTI), Imperial Tobacco Group (ITY), Gallaher Group Plc (GLH), Vector Group Ltd. (VGR). ETFs: iShares Dow Jones US Consumer Goods ETF (IYK), Vanguard Consumer Staples ETF (VDC), and Consumer Staples Select Sector SPDR (XLP) all have a major holding in tobacco producers. Kraft competitors: H.J. Heinz Company (HNZ), Campbell Soup Co. (CPB), ConAgra Foods Inc. (CAG), Group DANONE (DA).
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