speedybure (< 20)

Spy vs Spy: Phillip Morris vs Phillip Morris Int'l

April 02, 2009 – Comments (3) | RELATED TICKERS: MO

Given the circumstances MO is the ultimate value trap. Sure the valuation is great on paper in addition to an enormous 8% Yield. If you are in my camp a believe inflation will soon be a serious problem, Altria's EPS will increase in nominal terms but decrease in real terms. They can't increase the prices nearly to the degree of inflation that is a result of debt monetezation, deficit spending, and a significant amount of pure inflation thanks to defaults on bank credit/loans resulting from huge misallocations of capital. This capital is pure inflation because of our reckless banking system engaging in fracitional reserve banking. My previous posts illustrate what I think are the best industries(the ones that wiill outpace inflation) obviously gives a broad view, but even great bottom up investors will be taken out to the toolshed this time around. One name I always hear for MO is "recession proof", but it is not stagflation proof. Phillip Morris Intl (PM) on the other hand is both. 

Though a bit richer in valuation and a smaller dividend, This is the single best play in the tobacco industry. It is able to penetrate almost every market, with currencies that will become stronger than ours. China will eventually remove the soft peg from USD, and that alone should will greatly improve PM's adjusted EPS. It has operations worlwide, making it an especially great play if you think the dollar will depreiate against almost every currency. I think tracking this comparison over the next 5 years will show many people investing is an art, not purely a numbers game. For example i would never invest in a bank soloely because they are inherently insolvent. Those not familiar with banking should know if someone deposits 100m in Bank A, that bank can then make 900m in loans as they only need maintain a 10% reserve requirement. In other words be very weary of equities that derive a substancial of their revenue domestically ex- some resource industries. 

I personally invest internationally in equities traded on other exchages, for almost all of asia equities have far better valuations than the U.S. Obviously there are some exceptions and PM is one of them.