UPDATE: Spiked up right out of the gate. We will maintain a buy at $50.52 GOOD UNTIL CANCEL We may NOT get filled. Looks like we missed on a good opportunity.
February 22, 2019. We like to buy stuff when it’s on sale. When it’s in the gutter.
Now of course most of the time a stock is in the dumper for a reason. There could be numerous reasons. But sometimes the Company is fundamentally strong, and there are reasons to believe that it will turn around.
Altria (MO), we believe, is an example. It hit lows on Jan 24 and is turning around. The technical indicators have turned and are strong. Currently with a 6% yield, we have a limit buy order at $50.37.
As mentioned earlier, MO also recently acquired a 35% equity ownership stake in JUUL for $12.8 billion. Many market participants believed the price MO paid for this percentage stake in JUUL was excessive. While I agree the price paid for JUUL was a bit “steep”, I also understand MO’s line of reasoning for why management wanted to acquire this investment. Simply put, it secures MO’s future for years (possibly decades) to come. MO is also currently in the process of finalizing an acquisition of a significant minority stake (which could be converted to a majority controlling stake down-the-road) in CRON. Similar to the JUUL investment, I believe management is opportunistically looking towards the future regarding expanding the company’s investing base in cannabis and cannabis-related products. Similar to MO’s JUUL investment, there is the potential for tremendous global growth and opportunity in this field. Furthermore, this proposed acquisition will be mutually beneficial for both MO and CRON for years to come. However, to remain non-bias, it should be noted both these investments will take multiple years before having a notable impact on MO earnings (still in infancy–early growth stages which need modest-notable capital for continued expansion).
In addition, there is a high probability MO will continue to repurchase outstanding shares of common stock throughout most (if not all) quarters over the foreseeable future which has cumulative net benefits to shareholders (as exhibited over multiple years). To remain non-bias, I do project the amount of MO share buybacks, from a monetary perspective, will decrease versus the past several years. This is mainly the result of the accrued interest expense on MO’s large new term loan which was created to fund JUUL’s acquisition and CRON’s potential acquisition. However, MO’s recent cost reduction program should partially offset this factor to some extent.
Furthermore, recent shipment volume declines and relatively flat retail market share within MO’s cigarettes product segment need to be monitored in future periods. In addition, future developments regarding IQOS, e-vapor/RRPs (such as British American Tobacco p.l.c.’s (BTI) recent Glo™ and Eclipse™ devices), and the FDA (for instance MO’s recent acknowledgment the company will support increasing the minimum age to purchase any tobacco product from 18 to 21) need to be carefully monitored (which I intend to do).