Altria Group Inc (MO)

This tobacco company, falling into the consumer staples sector, is an area he is avoiding. As bond yields approach 3%, he feels bond proxy instruments (like high dividend yield tobacco) will get hit. The fact is, this stock trades relative to yield rates. He would direct you to real estate instead, if you are looking for yield.

A stock that is trading lower in an up market. If you look at the historical perspective, there is a clear support where there is strength. Trading at a good entry point.

Cigarette sales are declining causing stock prices to decline. He has a model price of $77, with 40% upside potential. If it moved lower he would be interested. He would buy here and more near $54. Yield is 5%.

Tobacco stocks have had a fabulous 12 months. This is a great company, and if you hold it for the long-term, you will be well rewarded.

The performance has been pretty strong, but more recently it was a sideways mover and now dropped after the announcement that they wanted to drop the nicotine in cigarettes. It is not really cheap any more at 19 times earnings, growing in the single digits.

They had a really nice run-up. She would not advise new positions at these levels. It is part of a defensive part of your portfolio with a really good dividend yield. They are increasing profits by rising prices.

One of the things about the sin stocks, particularly tobacco, is if you continue to hold them, you will be well rewarded. They pay big dividends and increase the dividends over time. If they sold off SIB Miller, there could be a one-time special dividend. He likes the whole category. A great company.

In tobacco, he likes this a bit more because the US$ is going to be continuously bullish going through the next couple of years. Phillip Morris (PM-N) is based on international operations, where Altria is based on domestic revenues. Phillip Morris has dropped below its 200-day moving average. After many years of these tobacco stocks doing extremely well and paying a nice dividend, the investment market has started to step away from some of these names. They’ve gotten very expensive. Dividends are good, but are probably not going to grow very quickly. In a rising interest rate environment, these look less and less attractive.

The difficulty with tobacco stocks is that they performed so well. They are the ultimate cash flow generative businesses. There has been a bit of a pullback, but over the long-term, it has been one of the best performing stocks. There could be a damper on tobacco stocks if the governments start increasing taxes for health reasons.

It moved higher and higher and pulled back with the market as a hold. People often don’t want to invest in this. It is very well run. $60 is a good entry point with a long term horizon.