A reader just lately requested that I put cigarette producer Altria Group (NYSE: MO) by The Worth Meter.
Actually, I might hardly ask for a extra fascinating project.
For the three many years of my grownup life, it has been clear to me (and everybody) that the cigarette enterprise is in a everlasting decline.
But once I pull up Altria’s long-term inventory chart and examine it with the S&P 500’s, that is what I see…
Wow!
Extremely, Altria is the seventh-best-performing inventory in the complete market over the previous three many years.
Who would’ve thought that was potential for an organization in a declining business?
If I had someway purchased $10,000 value of Altria inventory once I graduated highschool in 1991, reinvested my dividends and held it till at this time… I’d have $10.8 million!
Clearly, once we look within the rearview mirror, Altria seems nice.
However trying backward isn’t what profitable investing is about.
We have to decide how Altria’s inventory is more likely to carry out going ahead.
And that is the place valuing Altria will get very powerful.
For years, Altria and different cigarette producers have been capable of offset declining gross sales volumes with value will increase.
However they will’t do this if gross sales quantity disappears fully…
Which is changing into an actual danger.
Late final 12 months, New Zealand launched a generational smoking ban, which outlaws cigarette gross sales to anybody born after January 1, 2009.
The U.Okay. is contemplating an identical coverage, and I don’t doubt different international locations will observe.
It goes with out saying {that a} ban on Altria’s important product can be horrendous information for its enterprise.
It must be famous, although, that Altria’s administration is trying to steer the corporate towards promoting much less dangerous, smokeless merchandise.
Thus far, the corporate is having some success with this effort, nevertheless it’s nonetheless too early to discern the general impact on the enterprise.
Relating to Altria’s present valuation, it’s potential that the long-term decline of smoking has already taken a toll.
The inventory trades at barely eight occasions earnings, so there is no such thing as a optimism being priced in.
However traders could also be optimistic concerning the firm’s dividend yield. The inventory yields almost 10% at present costs, and the dividend was rated “reasonably protected” by Chief Revenue Strategist Marc Lichtenfeld earlier this 12 months.
With that form of dividend, you don’t want Altria’s inventory value to rise in an effort to obtain a superb return.
And that brings us again to the all-important query… The place does Altria are available in on The Worth Meter?
The way forward for this enterprise is simply too unsure for me to have any conviction on it.
With international locations around the globe making strikes to limit smoking and cigarette gross sales, I consider that the danger right here is way greater than it was 30 years in the past.
Regardless of the corporate’s low valuation metric and big dividend, there are higher alternatives elsewhere.
That’s the reason The Worth Meter charges Altria Group as being “Appropriately Valued.”
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