Login | April 19, 2024
A smokin' stock
MALCOLM BERKO
Taking Stock
Published: December 18, 2014
Dear Mr. Berko: Several places in New York and New Jersey have increased the minimum age to buy tobacco products to 21, which is expected to sharply reduce smoking by our young people. Our 17- and 19-year-old boys smoke, and such a law here would make it illegal for them to buy cigarettes and fine merchants who sell to those under 21. I'd be so glad for this because no matter how hard we've tried, we have not been able to break our two sons of this nasty habit, which they picked up in school.
When my dad passed away in 2009, we inherited 625 shares of Altria. Our broker thinks the move to outlaw sales to those under 21 will hurt this stock and has advised us to sell it and put proceeds in a Ginnie Mae fund. -- SA, Webster, N.Y.
Dear SA: Today and yesterday and tomorrow are absolutely the worst and wrong times to buy a GNMA fund. I'm nonplussed this numbskull didn't try to sell you an annuity.
Your broker is as terminally dumb as your state legislators who have proposed an age limit of 21 to buy cigarettes. This makes as much sense as washing your feet with your socks on! The unintended consequence would be an increase in the cost of a single smoke from 75 cents to $1.25. Cigarettes are already so expensive in New York City, which has made the legal age to buy tobacco products to 21, that they are sold individually because many smokers can't afford the $13-per-pack price at a convenience store. We have feel-good gun laws, liquor laws, pot laws, etc., to keep negative influences from our kids. But New York City's new cigarette law is basically impossible to enforce, while smokers are inconvenienced by the higher price. As former smoker and activist Yakov Stromboli commented, dumb is as dumb does! Your state rakes in over $4 million each day in cigarette taxes, and your Legislature won't kill that money goose. Legislators know that the "21" law would be pure sop and poppycock that would look good but accomplish nothing. Keep the stock!
High excise taxes and harmful health effects will continue to dampen consumer usage in Europe, the U.S. and Canada. However, the number of smokers in the Middle East, the Far East and South America continues to grow, as their governments are unwilling to restrict consumption. Therefore, Altria Group's (MO-$50.52) revenues will continue to grow annually with lots of help from Benson & Hedges, Marlboro, Merit and Virginia Slims. 2014 revenues should come in at $24.9 billion. Earnings are expected at $2.55 a share. And the $1.96 dividend yields 4.1 percent. MO investors have enjoyed dividend increases of between 8 and 12 percent over the past six years, made possible by net profit margins exceeding 20 percent. Next year, management expects revenues of $26.2 billion, earnings of $2.82 a share and an 8 percent dividend hike, to $2.12. And in the meantime, investment services are enthusiastically recommending MO for those seeking a stream of dependable and growing income. MO has a low beta (0.6) and, according to Value Line, is "a strong candidate for conservative buy-and-hold accounts."
Wall Street recognizes that fewer folks are smoking cancer sticks these days. However, the Street recognizes that many ex-smokers will make the switch to a more profitable e-vapor product. Though MO is a late entrant to this $3.6 billion market, the industry continues to grow smartly, and e-vapor revenues could triple in three to four years. Fortunately, MO has the marketing prowess and money to become a mega player with this product, and the e-vapor market could contribute nicely to MO's revenues, earnings and growing dividend. Meanwhile, MO's smokeless tobacco products (Skoal, Copenhagen, Red Seal, etc.), accounting for 13 percent of 2014 revenues, are gaining traction and profits. You should also know that MO owns 27 percent of SABMiller, one of the world's largest brewers. MO believes that SABMiller will contribute $950 million to its 2014 bottom line (up from $461 million in 2008), with increasing contributions in future years.
The consensus is that MO could be an $80 stock in four to six years. And some of the most successful mutual fund managers agree, because they own hundreds of millions of shares.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.