Valuing Big Tobacco, Part VII

Includes: LO, MO, PM, RAI
by: CRG Research

In this article, we'll analyze Altria Group (NYSE:MO), Lorillard (NYSE:LO), Reynolds American (NYSE:RAI), and Philip Morris International (NYSE:PM) from a portfolio management perspective. We'll take a look at the geometric mean monthly returns, monthly variance, monthly standard deviation and correlation with the market. In the next article, we'll conclude this series with conclusions and recommendations. In the previous article, we analyzed the macroeconomic factors impacting the firms.

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For the most part, Altria's monthly returns are inside of +/-10 percent.

Most of Lorillard's monthly returns are inside of +/- 10 percent. However, the return distribution is skewed to the upside.

Most of Reynolds Americans' monthly returns are inside of +/- 10 percent. Reynolds had a monthly return of 20 percent and a couple monthly returns near -20 percent.

Most of Phillip Morris' monthly returns are inside of +/- 10 percent.

Monthly Mean Return

All four firms have positive geometric mean monthly returns. Lorillard has the highest geometric mean monthly return at 1.58 percent. Phillip Morris' geometric mean monthly return is 1.47 percent. Reynolds Americans' geometric mean monthly return is 1.21 percent - the lowest geometric mean monthly return of the four firms. The data is from 2006-present.


Variance is a measure of the volatility or dispersion of returns. The higher the variance, the less predictable the returns and the more risky the investment.

Phillip Morris and Lorillard have the highest variances. Altria has the lowest variance of the four firms.

Standard Deviation

Standard deviation is a measure of the volatility of an asset. The standard deviation of Altria's monthly returns is 4.9 percent. The standard deviation of Lorillard's monthly returns is 6.8 percent. The standard deviation of Reynolds Americans' monthly returns is 6.2 percent and Phillip Morris' is 6.8 percent.


In the period between 2006 and now, Altria and Lorillard were the least correlated with the S&P 500 (NYSEARCA:SPY). However, all of the firms are strongly correlated with the market. That said, Altria and Lorillard provide the most diversification benefits.

All four firms are investment grade. Traders may want to look elsewhere for returns.

To be continued...

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.