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Philip Morris: The Best Tobacco Play For The Next 25 Years

May 03, 2021 11:29 AM ETPhilip Morris International Inc. (PM)96 Comments
Wealth Insights profile picture
Wealth Insights
13.07K Followers

Summary

  • Philip Morris takes advantage of the lucrative tobacco business model by selling into international markets that are often under regulated.
  • The company’s IQOS technology is a landmark for the company, and the early returns are pointing to long-term success and adoption.
  • With a growing business and international positioning (a hedge against a weakening US dollar), Philip Morris is positioned to keep raining large dividends down on its investors.

January 15, 2020, Monchegorsk, Russia. Gold IQOS electronic cigarette on a dark background, Marlboro and Philippe Morris iqos, which is described as a hybrid cigarette between analog and electronic
Photo by Tatyana Berkovich/iStock Editorial via Getty Images

Tobacco has been a resilient industry for centuries, but these days the story around tobacco stocks is all about transitioning to the future. While increasingly fewer cigarettes are consumed each year, the future isn't

This article was written by

Wealth Insights profile picture
13.07K Followers
Using fundamental analysis and common sense, I provide straightforward insights on stocks and markets. https://www.threads.net/@wealth__insight- Bachelor's degree in Business Administration with a concentration in Financial Analysis. Been investing and following the markets for more than a decade.- Wealth Insights is an investor and investment author. His content is not geared to anyone's investment goals, time horizons, or risk tolerance. Content is for illustrative purposes only and is not intended to displace advice from a fee-based financial adviser. It is not to be taken as investment advice or influence investor decision-making. The accuracy of data is not guaranteed.

Analyst’s Disclosure: I/we 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.

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Comments (96)

By_Endurance_We_Conquer profile picture
PM ... No growth!

10y revenue flat, slightly negative
10y EBITDA flat
10y Cashflow flat, slightly negative

while at the same time debt increased by around 80% (10y).

So, PM takes on debt to pay out dividends? (Capex is no issue, no capital intensive business to run)

Do yourself a favor and watch this 10min presentation;
www.youtube.com/...
bk25 profile picture
@Human_Action Thanks for posting. But I did not hear him talk much about IQOS and its potential. IQOS is like the iPhone vs a rotary phone (combustible cigs). Plus recent news / reports have shown IQOS is hitting all their growth targets and then some...am I wrong?
bk25 profile picture
@Human_Action also how many other companies out there can pay a 5% dividend with borrowed money. Not many. At the end of the day...it's all about the dividend IMO. Just look at MO over the years.

Altria Share Appreciation Since 1970
6,600%

Altria Total Return Since 1970 With Dividends Reinvested
162,800%
By_Endurance_We_Conquer profile picture
@bk25

This presentation is all about hard figures: Income statement, Balance sheet, Cashflow. And it does not look good. I admit I did not know it was that bad. After the video I was kind of speechless.

IQOS might have a potential. Fact is that PM's main revenue driver is the classic cigarette business which is skrinking faster than expected.

Other way around: A confident business talks about its cash flow, if cash flow is great. The more your confidence decreases, the more you talk about revenue, sales and if that is mediocre too than talk about volume or customer satisfaction .. blablabla. IQOS talk - potential maybe, maybe not. It's the only life vest around.

Ok, I own PM. It is a tiny position, just for the dividends. BUT paying out dividends with borrowed money, with debt is not sustainable. As soon as PM hits a certain % capital gain, I will sell PM.

Good investing.
a
Did you know:

"There are many chemicals in cigarettes and cigarette smoke that can damage your heart and blood vessels. Two chemicals, nicotine and carbon monoxide, interfere with your cardiovascular system’s ability to function properly. Exposure to nicotine and carbon monoxide change your heart and blood vessels in ways that increase your risk of heart and cardiovascular disease.

Nicotine causes your blood vessels to constrict or narrow, which limits the amount of blood that flows to your organs. Over time, the constant constriction results in blood vessels that are stiff and less elastic. Constricted blood vessels decrease the amount of oxygen and nutrients your cells receive. To meet the need for more oxygen, your heart rate may increase.

Carbon monoxide binds hemoglobin, the molecule in your blood that carries oxygen. When carbon monoxide is bound to hemoglobin, oxygen cannot bind. This decreases the amount of oxygen delivered to all of your cells. To provide your body with more oxygen and to pump more blood around your body, your heart may enlarge.
An increased heart rate, an enlarged heart and stiffer and less elastic blood vessels make it harder to pump blood and provide the body with the needed oxygen and nutrients. These changes in the structure and function of your blood vessels and heart increase your risk of high blood pressure and cardiovascular disease.

Exposure to second hand smoke can have these same effects on the heart and blood vessels. When you stop smoking the damage to your heart and blood vessels reverses and your risk of heart disease drops.

It is hard to stop smoking because your body is used to a certain level of nicotine. For this reason, some people find it easier to quit by reducing the number of cigarettes smoked each week. This slowly reduces the level of nicotine in your body and reduces the symptoms of nicotine withdrawal. The use of other nicotine products such as nicotine gum, nicotine patch, nicotine inhaler or lozenges can be helpful to get your body used to less nicotine.

Other people find it easier to just stop smoking all at once. Still others find smoking cessation programs or support groups such as 1-800-QUIT-NOW helpful. Your doctor can also prescribe a non-nicotine medication to help you stop smoking.

How you stop smoking does not matter. Choose whatever method or combinations of methods work for you, and adopt a heart-healthy lifestyle."

Helpful hints from one who just barely survived a stage 4 cancer, which appeared 45 years (!) after I quit using tobacco. That's how long tobacco stays in your system. It's nasty. By the way, there is no "stage 5".

Consider other industries to invest in, perhaps?
investor_newbie profile picture
One big problem is that from 2008 to now, the stock price almost just doubled. So the annual compound return is just 5%. Even adding a 5% dividend return compounded to it, that is a roughly a 12% return. Is this something amazing compared to other opportunities? I don’t know.
L
@investor_newbie Seems like you have the information you need to answer your own question...no? From 3/31/08 through 3/31/21, to use a period perhaps similar to what you mention, MO had an average annualized return of 12.8% as compared to 11.1% for the S&P 500 Index and 10.1 for the S&P 500 Consumer Staples Index. Amazing? Maybe not. Excellent? Perhaps. Better than some comparative indices? Sure.
investor_newbie profile picture
@Lobeta I was just wondering why people are so interested in PM? In the meantime, why not other common and boring names, such as AAPL, GOOG, Amazon, etc.? What did they do over the same period from 2008 to 2021?
L
@investor_newbie What makes you think people might only be interested in one stock? Just because one might be interested or own PM does not mean one does not also own others like those you cite. For many, this is not a mutually exclusive scenario. As part of a diversified portfolio, PM might be very appealing to some. What's not to like about PM?
bk25 profile picture
I don't think the market will ever fully appreciate the idea that PM might have found a way to deliver nicotine "reduced-risk" way. Imagine if the smokers of old never stopped in the first place. How much cash would PM / MO be making?
A
@bk25 There is already a risk-free way to get a nicotine fix - vaping. The lack of any data on its risks did not stop the government from attacking it. So IQOS and what not is certainly not immune to severe overregulation and heavy taxation.
craftbrewinfo profile picture
Is PM a quality stock? Absolutely. I just can't get behind the valuation currently. I actually trimmed my position and added to my MO and BTI ( with a much better valuation) There is not much meat left on the bones here after the run up if entering in to a new position however. If not, let those earning and dividends compound !
o
@craftbrewinfo Yea, chase the losers and sell the winner, works every time.
Dividend Latitude profile picture
@oldmundad If I owned any MO or BTI then I would sell every share and buy PM, even now.
BAHAMAS1 profile picture
Thanks for the article.

Long PM
S
The size and scale of this company gives it the ability to move into cannabis on a large scale. A natural fit. The sooner the better and the bigger the better.
Greenhorn Investor profile picture
Thank you for the article. Long PM and I'd love to buy more. Perhaps I'm being greedy but I'm waiting for a better re-entry point.
s
The fact is:

MO beats PM with dividends reinvested. In fact, MO beats all of them (PM, BTI, IMBBY)
Dividend Latitude profile picture
PM is the only tobacco stock I am willing to own. thanks for the article.
chrave1956 profile picture
If this fake president remains long term the future of tobacco is great. Bill Gates and his group have for years stated the world is overpopulated, why then is he pushing vaccines?
Tobacco is a depopulation tool and legal marijuana will keep the masses dumbed down and giggling ... much easier to continue their Great Reset Communisssm planned takeover.
l
@chrave1956 LOL. Vaccine = Vaccine Passport = National ID Card equivalent. Pretend Administration "concern" with tobacco and menthol is to possibly justify increasing federal tobacco tax. Pretend Administration excels at both tracking and proposing tax increases. I do laugh at the Elite's concern with overpopulation as they are all so old and cannot live forever so they will not benefit from a reduction.
chrave1956 profile picture
@lake-rc The Elite is not just Mr. Burns ...
Dabub profile picture
All that glitters may not be gold. MO is clearly dragging its feet on IQOS. The Juul situation may come to a head before the antitrust trial begins. MO quietly wrote down a smidge more on its Juul investment in 1Q and made an exaggerated point of not talking about future mergers/acquisitions on the earnings call. If their current valuation is correct, they can buy the rest of Juul for ~$3B. I wouldn’t be surprised if they buy out the rest of Juul this quarter and the FTC charges get dropped. MO’s slow roll on IQOS may be driven by the strategic priority around the real growth opportunity in nicotine which is vaping with dual purpose devices for HTC pods when HTC becomes legal and regulated by the FDA.
S
Great article, great company.
Buyandhold 2012 profile picture
"Philip Morris. The best tobacco play for the next 25 years."

True.

And the best tobacco play for the next 100 years.
William777 profile picture
Great article. Thanks. PM and MO have been awesome for 70 years.
StormChaser2 profile picture
@Wealth Insights ; couldn't agree more with your assessment. I was a believer when PM wasn't thought of very well by very many; it was harder then as the price languished. PM became 7.3% of my portfolio (sans cash and real estate) and 8.4% of my income stream with a 6.2% YOC. I'm grateful to have the position and hope more people find the financial benefits of PM.
L
Truer words have never been spoken. Long PM.
a
"best tobacco stock for next 25 years"....if you use tobacco products you might not be around in 25 years. The author is wise to have "no positions in any stocks mentioned". Readers would be well advised to follow his example, not his recommendations. Ask any cancer survivor, or the widow or widower of someone who did not survive.
L
@ahimsaka "Ask any cancer survivor, or the widow or widower of someone who did not survive."

Ask them what? If one should use the product? If one should invest in the stock?
Bim Ska La Bim profile picture
@ahimsaka ...It seems like you've missed most of this article's points (and the not-so-recent moves from PM and the like)
l
@ahimsaka You are confused - this is not an anti-tobacco forum but rather and investment forum. Perhaps you should research the effects/benefits nicotine has on alzheimer's. IQOS may be a product you want to both use and invest. Interestingly, I did not see any comment from you on MCD or JACK regarding the biggest health concern which is obesity.

More specifically for you retirees should be a concern regarding sugar. I laugh watching the elderly load up on cookies, ice cream, and other sugary snacks at the grocery store. High sugar intake by the ederly is linked to dementia. Have you made similar comments on HSY, TWNK, or COKE?

Since you decided to add a comment for a stock you do not own and will not own, I am thinking you don't have enough to do. So let me help you get started on researching elderly and sugar intake:

www.health.harvard.edu/...

www.silversneakers.com/...
Luca Stein profile picture
I know currently PM is the best positioned Tobacco company in the World. The hightest returns will most likely deliver BTI . Sorry not sorry but they are so cheap and are the second best at RRP. Swedish Match might be underestimated too and has in my opionion the opportunity to challenge PM. What are you guys thinking?
a
@Luca Stein I own PM and BTI. Like them both.
StormChaser2 profile picture
@Luca Stein Long PM, BTI and MO. All 3 deliver!! This is an investment and they deliver income. I don't smoke and I wouldn't encourage anyone to do so. I invest and find these to be good investments.
josephaoppenheim profile picture
I recently added PM, average cost 93.8, 1.2% of my, now 21 stock portfolio. I also recently loaded up on MO, average cost 43, 7.8% of my portfolio.

Since about 35% of the US are science and fact deniers, MO should do fine.
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