Altria Stopped Smoking?
Although Altria looks like the ultimate value play, I believe is nothing short of a value trap.
Don't get me wrong I owned Old Altria (KFT,PM,MO) since the early 2000's. In fact it was my first stock I ever invested in. It treated me like a king,
During this time I rid my self of kraft after it was spun off, leaving me with MO and PM. I held onto these both when the crash began, but subsequently sold out of MO with hesitation at first but now I am convinced it was smart. Here's why:
* Inflation: Although I think MO could keep prices in line with inflation if it were moderate are even in the 6-8% range. But The exponential increase of the money supply, defecit spending, bailouts, tarp, stimulus, our trillions of unfunded liabilities (highly concertrated in healthcare, which will increase nearly 500 billion every year starting in 2010). Not to mention national debt, will have massive inflationary consequences. See my previous posts about inflation.
* Government Regulation- We are in a depression in my opinion, not a recession. Unemployment is on the rise while Corporate Profits are shrinking. What does this mean? Higher taxation! In this case increase in the excise tax on tobacco. At least this is what i think will happen.
*Potential Lawsuits- It seems logical those who have lost a lot of money or those looking for a free handout may file a lawsuit due to the economic crisis. Although this is so minimal and barely worth mentioning, it is just another factor. The real future profits lie in PM - a diverse income stream in terms of currncies, plenty of room to growth for a prolonged period of time in the high single digits. It also pays out a huge dividend and is a value company as well. It will be able to pay down debt more cheaply because it is in U.S dollars. I don't think there is downside in MO, but I don't see a high return on investment, especially when compared to its better half- PM - Phillip Morris Intl