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Deej's Top Pick Update: The day has come, Philip Morris International is here

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March 30, 2008 – Comments (2) | RELATED TICKERS: MO

The day that I have been waiting for since I wrote up and purchased Altria stock back in Nov. (http://caps.fool.com/Blogs/ViewPost.aspx?bpid=21743&t=01001019292467236494) has come.  Today Altria's spin-off of Philip Morris International starts trading under the ticker symbol PM. Altria's U.S. tobacco business and its 28.6% stake in SABMiller will continue to trade under the ticker symbol MO. 

Initially I was considering selling a portion of the U.S. business after the transaction was complete, but at 22 it currently trades at only 13 times its estimated 2008 earnings, which is pretty attractive for a company that may increase its earnings by 13% per year for the next several years through dramatic cost cuts, price increases, expanding into the cigar business through its purchase of John Middleton, possibly monetizing its stake in SABMiller, introducing a new line of smokeless tobacco products, and buying back stock.  Big MO currently pays a solid dividend of 5.3% and it will likely increase it going forward.  It looks like such a good value at this point that I am going to hold onto my full position in both stocks for now. 

Philip Morris International is more of a growth play than a value play.  The spin-off will free PMI to use its stock as ammunition to acquire new companies.  It also plans to aggressively introduce new products.  PMI has a number of opportunities to expand its market share in the 100 countries that it already sells cigarettes in, but there's one big country that it is about to enter that has huge potential...China.  PMI has reached a joint venture with China National Tobacco to enter this $100 billion market and it may begin selling its products there as early as late this year.  Even with the great growth potential, PMI still pays a dividend of 3.5%.

I am really excited about the potential that both of these companies have to provide me and other investors with above average returns over the next several years.  It does not appear that PM is available on CAPS yet, but I plan on buying it here as soon as it is.

Deej

Long MO & PM

2 Comments – Post Your Own

#1) On March 31, 2008 at 1:00 AM, DemonDoug (35.21) wrote:

I'm your wingman on this one Deej.  Long both MO and PM in real life and will be long PM in CAPS when it starts trading.

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#2) On March 31, 2008 at 5:47 AM, TMFDeej (99.25) wrote:

Glad to have you aboard, DemonDoug :).  Hopefully we're on our way to outstanding returns.  Smoke 'em if you've got 'em.

Deej

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