Seeking Alpha
Long/short equity, value, special situations, growth
Profile| Send Message|
( followers)

Recently we offered our view on Philip Morris (NYSE:PM):

The company, based in New York and selling its wares exclusively overseas, has been managed near-flawlessly. Morris yields 3.67%. Its brands continue to rule the globe. It is buying back $18 billion worth of shares over the next 3 years. It's developing inventive smoking alternatives. It's all-world.

Having said that, we were concerned that Morris spends US dollars but gets paid in global currencies:

Philip Morris will watch as mentor Altria (NYSE:MO) and rival British American (NYSEMKT:BTI) continue their legends as tobacco investment champions, but Morris is doomed to disappoint...

The company divides its markets into four geographic segments: The European Union (EU) Region, The Eastern Europe, Middle East & Africa (EEMA) Region, The Asia Region, and The Latin America & Canada Region.

Which of those four regions' currencies are going to be stronger than the dollar going forward? Europe? Latin America? Asia?...

Morris has run up BIG, so SELL IT RIGHT NOW. The US dollar will only get stronger than Morris's customers' currency. Morris competitors do not have this problem and offer a better dividend. Sell Morris. Sell it all right here. Sell Philip Morris.

After this article was published there was some sentiment in some comments that I wanted to address.

"Never selling it." Add a "I've invested in Marlboro for six hundred years and I'm.." before that comment and that about sums it up.

"What is his agenda?"

Here is my agenda:

  • Show Morris may have an inherent disadvantage that can't be solved through management anymore than height can be coached
  • Show there are alternatives to Morris, specifically British American, that may be a better pick for global tobacco investors
  • Suggest the "unthinkable"

Paulo Santos wrote that he once refused to enter a trade around the time of the dot-com bubble. The trade? Someone wanted to buy a utility, their reasoning being that this internet business was out of hand and they wanted somewhere conservative to put their money, somewhere a little more safe. (Source: Google Finance)

(click to enlarge)

The problem was that a lot of people had that same idea and the utilities, the stocks that invented the phrase "safety stocks", got overbought. This graph is from the first utility I clicked on, Duke Energy (NYSE:DUK).

The world has been in crisis mode for a good while now, could it be that everyone that is going to flee to the safety stocks, has? Could sellers outnumber buyers from here? This safety stock has run up big.

"Retirement Killer?" I certainly don't really think Morris is a bad company. But I do mean to rock the boat a little and suggest that this safety stock may not be so safe.

Hmm, what did Duke Energy look like in the year before it collapsed?

(click to enlarge)

Nice big gain for a safety stock. How does Morris' chart look in the last 12 months?

(click to enlarge)

Conclusion

It could be that after a prolonged period of uncertainty, investors that are likely to flee to the "safety" of Morris have done so. Sellers could outnumber buyers from here. It has happened before in the "safe" stocks. And that's the worst part about it. Some investors have their "safe" money in Philip Morris, and that could be a retirement killer.

Beware of this in general when making "conservative" stock picks. Consider these non-cyclical "safety" plays, each one of these stocks is regarded by many as not very risky: The Coca-Cola Company (NYSE:KO), Procter & Gamble Co. (NYSE:PG), Fomento Econ (NYSE:FMX), Philip Morris International, Inc., Ambev (ABV), Anheuser-Busch InBev SA/NV (NYSE:BUD), Pepsico, Inc. (NYSE:PEP), Unilever plc (NYSE:UL), Unilever NV (NYSE:UN),Altria Group Inc. (MO), Kraft Foods Inc. (KFT), Diageo plc (NYSE:DEO), Colgate-Palmolive Co. (NYSE:CL), Kimberly-Clark Corporation (NYSE:KMB), General Mills, Inc. (NYSE:GIS), Reynolds American Inc. (NYSE:RAI), Estee Lauder Companies Inc. (NYSE:EL), Ecolab Inc. (NYSE:ECL), Archer Daniels Midland Company (NYSE:ADM), Mead Johnson Nutrition Company (NYSE:MJN), Kellogg (NYSE:K), H.J. Heinz (NYSE:HNZ), Lorillard (NYSE:LO), Hershey (NYSE:HSY), Brasil Foods S.A. (NYSE:BRFS), Brown-Forman Corporation (NYSE:BF.B), Sara Lee (SLE)

Here is a look at this group's performance over the last 12 months: (Source: Google Finance)

(click to enlarge)

This group has been a real darling over the last year. The caveats, friends, are emptored.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Crouching Retirement Killer: Dividend Blimp Philip Morris