The words and sentiment are as true today as when Rudyard Kipling penned them in his famous 1895 poem of uplift and improvement titled “If.”
Here’s something else that’s as true today as in Kipling’s era: People are no less prone to losing their heads. People include investors.
Many investors have lost their heads over one stock in particular. The one stock is Altria Group (NYSE: MO), the tobacco magnate behind the dominating Marlboro brand.
Altria Group shares have lost 40% of their value over the past 12 months. A notable chunk of the loss occurred in 2019 thanks to a slew of Johnny-come-lately downgrades.
Citigroup (NYSE: C) downgraded Altria Group shares to sell from neutral and lowered its price target to $45 from $47. Independent Research downgraded Altria Group shares to sell from hold and cut its price target to $47 from $59. Analysts at Stifel (NYSE: SF) trimmed their price target to $59 from $70.
Another notable downgrade occurred this week.
Morgan Stanley (NYSE: MS) dropped its Altria Group price target to $45 from $54. Morgan Stanley fears accelerating cigarette volume declines (estimated at 6%). (The Morgan Stanley analyst who downgraded Altria Group also expects EPS to rise 4% to 9% this year.)
A lot of former Altria Group investors’ heads roll about the streets and alleys. I back my assertion with the Altria Group facts.
The fact is that Altria Group is more than cigarettes.
The company owns 10% of the largest brewer, Anheuser-Busch InBev (NYSE: BUD). It owns the largest smokeless tobacco brands – Copenhagen and Skoal.
Altria Group seeks to further diversify the business with cannabis. Shareholders will vote next month to invest $2.4 billion in Toronto-based Cronos Group (NASDAQ: CRON), a leading cannabis investor.
Additional diversifying investments are worth mentioning.
Altria announced last week that it will invest $12 million in technology from Lexaria Bioscience (OTC: LXRP). Altria and Lexaria will explore innovations in oral reduced-risk nicotine consumer products.
Altria Group announced last month that it had acquired a 35% stake in Juul, the leading e-cigarette manufacturer. Altria invested $13 billion in Juul. Altria Group’s investment values Juul at $38 billion. Juul has roughly 75% of the e-cigarette market.
Wall Street enthusiasm initially ran high when the Juul deal was announced.
Cowen & Co. immediately reiterated its outperform recommendation and its $74 price target on Altria Group shares. Wells Fargo (NYSE: WFC) opined that the deal was “very positive” and could produce earnings gains as early as 2020. Wells Fargo rates Altria Group as outperform. It set its price target for Altria Group shares at $65.
That was last month. Investors have taken their cue from the more recent downgrades from Citigroup Morgan Stanley, et al.
While others fumble about in search of their heads like a mob of Ichabod Cranes, let’s keep ours by staying with the facts. The fact is that Altria Group is an exceptional value.
Altria Group shares trade at only 10 times 2019 EPS estimates. The shares trade to offer a 7% dividend yield – a yield unseen in over a decade.
Here’s another fact: Altria’s management team is as good as it gets.
Gross, operating, and net margins continually trend higher. The margins have always been impressive. They’re even more impressive today.
The operating margin is worth highlighting. It increased six percentage points to 37.5% since 2014.
The increased cash flow provided by continual efficiency gains has been used to enrich shareholders. Altria has increased its dividend every year for the past 50 years. (The dividend was increased twice last year.)
Head-loss selling has presented head-keeping investors with exceptional buying opportunities in the past.
Altria Group was hit by surprisingly strong competition from generic brands in the early 1990s. Altria Group responded by slashing the price of Marlboros by 40 cents a pack on April 2, 1993. This shocked the investment community and sent the stock plunging 23% on the same day.
Images of the apocalypse soon faded. Altria Group shares quadrupled over the subsequent six years to hit a series of all-time highs.
Another opportunity emerged at the end of the decade. Altria Group was forced to sign off on the Tobacco Master Settlement Agreement in late 1998. The settlement required the major tobacco companies pay $206 billion to compensate sundry government bureaucracies for tobacco-related health-care costs.
Another plunge. Altria Group’s share price dropped 33% after the company signed the agreement.
Another plunge, another buying opportunity. Altria Group shares quadrupled again over the subsequent six years to hit another series of all-time highs.
Of course, it could be different this time. People may have finally been perfected. They will eschew tobacco, nicotine, beer, and pot in favor of kale, meditation, spring water, and incense.
If you believe that, you have lost your head.
Keep your head and exploit the opportunity to create an income fortune every 20 days on average.