Philip Morris International (PM)

It has negative equity of $12 billion. It trades on air. There are better opportunities elsewhere. Don't touch it.

An ugly chart, long out of favour, at 2013-14 levels. The risk is to the upside. The first stop is $95. Also, there's no reason tobaccp companies can't get into cannabis. (Analysts' price target: $93.58)

Cigarette companies are on the “do not buy” lists for many fund managers, yet people continue to smoke. This is a huge cash flow generator, which pays a good dividend that continues to grow.

He used to own it personally, but not for their clients. Cigarettes are the most profitable business in the world because customers are relatively price insensitive. They produce a product that is addictive for the customers, which makes for a great company and a great industry. Problem now though is that tobacco usage is falling off faster than people expected. It’s still early in the game for e-cigarettes but they aren’t coming up as successfully as expected. Consumers products stocks are underperforming, they were great until interests rates started going up. He sold his holding.

This company is the international tobacco company and Altria (MO-N) is the US tobacco company. They split up a couple of years ago and no there is talk about a merger. The growth is not so much in tobacco but fake tobacco. His company doesn’t invest in tobacco stocks because of ethical reasons. He owns it personally actually.

Tobacco stocks have been tremendous performers post the crisis, not only because they are a fairly stable industry, they give a tremendous dividend and grow it. In an environment of low interest rates, people are looking for yield, and this has definitely been a safe haven. There is consolidation going on in the industry, which provides a floor for the stock.

He is a big fan of sin stocks. Tobacco in the last year has been on a stellar run. He prefers British American Tobacco. Dividends keep growing.

(Market Call Minute.) If you can live with a sin stock, then they are doing okay right now.

It is a consumer staple product. This is not its period of seasonal strength. It has broken above recent highs. It is out of season so he would not get into it. But if you have it then hold until it breaks down. Aug. to Oct. are the prime months for the tobacco companies.

(Market Call Minute) Their product is in a secular decline.

The industry could see continued consolidation. Volumes in North America continually go down, but they increase their pricing because it is an adductive product. Be careful of interest rate sensitivity to this one because investors use them as an income play. He likes it in a diversified portfolio.

Because revenues are coming from overseas and the US$ is moving higher, this stock is getting hurt, and it might continue to get hurt if the US$ continues moving higher. He thinks it will. Valuation is expensive for a lot of these names, and they are starting to come off because of that. Growth rates are very, very low.

Market Call Minute. Cigarette consumption is on a secular decline.