Final Trade Detail
- Altria's 45% stake in Cronos provides it huge upside in the cannabis boom
- Altria pays a solid 6% dividend for income investors as they wait for its bets in cannabis and e-cigs to pay off
- Altria has maintained massive margins even though its core business is dying... giving us huge confidence in its venture into new frontiers
It’s rare we get to buy a cash gushing business at a good price these days.
The market has sent this company down 26% from its highs.
But that’s where our opportunity lies. We’ll also sit back and collect a huge 5.85% dividend while the market realizes they made a mistake.
We’re talking about Altria (MO).
Altria is a $104 billion behemoth. It’s known for its famous Marlboro cigarettes – which has about 41% global market share. But you may also know some of their other brands like Black & Mild, Skoal, Husky, and Copenhagen.
Smoking cigarettes are on the decline. Smokable product sales are down 30% over the past 10 years. But that hasn’t hurt Altria in the least.
You may think because the industry is dying that revenues have plummeted. But revenues were up 4% from 2014-2017.
Why? Because Altria doesn’t need to “innovate” its products. It doesn’t take much in the way of capital expenditures. So it just increases its margins by raising prices.
Its gross profit margin is 48%. Return on assets (ROA) are 12.5%. And return on equity (ROE) is 45%. Altria isn’t suffering as bad as headlines may lead you to believe.
Altria knows the cigarette business is dying. It’s not going to lay around and do nothing.
It invested $12.8 billion for a 35% stake in e-cigarette company JUUL. JUUL dominates this growing market with 60-75% market share.
We think Altria paid a bit much for JUUL. But that’s our opinion. Altria’s board and C-suite did their due dilligence. They have better insight into the market than we do.
We’re betting Altria paid up on JUUL because it has one of the biggest distribution networks in the world. Altria just needs to pick up the phone and these stores (think gas stations or local grocery stores) will put JUUL’s products on its shelves. (It’s why we think Apple would be smart paying up for Netflix. Or why it should buy Paypal.)
It also took a 45% stake in cannabis producer Cronos – with the option to increase it to 55%. It paid $1.8 billion. Again, we think it paid a bit of a rich price. But it’s marking its territory in the exploding cannabis industry.
Meanwhile, its ace in the hole is its 10% stake in Anheuser-Busch InBev – one of the largest beer producers in the world.
Altria is well diversified in all vices.
Consumers shifted away from cigarettes, yes. But they’ve switched to e-cigs, cannabis, and alcohol.
We like Altria at these levels. It gushes cash and pays a near 6% dividend.
Buy Altria up to $58. Our first price target is $64.
Our stop loss will be a volatility based stop. That’s set at around $46-47. But we’ll alert readers via our email notifications if things change.
(Note: Altria has been up for the better part of two weeks. We wouldn’t be surprised to see a little breather. We suggest building your full position over time).