Altria (MO) is one of the largest tobacco corporations in the world — and our top speculative idea for 2019.  Marlboro is Altria’s most dominant brand; it controls more than 40% of the cigarette market in the United States, notes Ben Reynolds, editor of Sure Dividend.

Altria operates inside the United States, with its ‘sister company’ Philip Morris International (PM) owning the Marlboro brand (and others) outside the United States.

In addition to Marlboro, Altria controls several other cigarette brands, and sells other related ‘sin’ products like chewing tobacco, cigars, and wine. Well known brands the company owns are Skoal, Copenhagen, and Ste. Michelle wine. Altria also has a 10% investment stake in global beer giant Anheuser Busch Inbev (BUD).

Sentiment surrounding Altria has turned decidedly negative as can be observed by the stock’s price declines in 2018. Falling smoking rates and potential FDA restrictions on e-cigarette flavors and menthol cigarettes are reasons for the negative sentiment.

Altria has been aware of declining smoking rates for some time. The company is investing heavily in its non-combustible ‘reduced risk’ products. Altria also recently invested $1.8 billion into cannabis company Cronos Group to buy a 45% stake in the company. 

And while cigarette volume is declining, Altria has been able to mitigate the effects of lower smoking rates by raising prices on cigarettes. The results on the bottom line are clear – Altria has grown its adjusted earnings-per-share each year since 2011.

The company’s success in the face of a declining market is due to intelligent capital allocation. Altria has positioned itself for growth in reduced risk tobacco products, and has growth potential in the marijuana market in the United States over the long run if laws continue to change in the United States.

Moreover, Altria has reduced its share count every year since 2010 and pays out the bulk of its profits as dividends. The result is a shareholder friendly profit machine with a high dividend yield of around 6%.

The pessimism surrounding Altria has made the stock cheap relative to its historical valuation over the last decade — a time when smoking rates were declining just as they are now. The stocks high yield and exciting long-term growth prospects give investors good reason to hold and wait for the stock price to recover.

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