(wow) Words Of Wonders Level 2027 Answers – When it rains, it pours. Just ask Altria Group (NYSE: MO ) investors. The first quarter or so has been a good run, with the market looking for safety rather than growth. The second quarter turned into a bloodbath with fears of inflation, consumer weakness, nicotine and analyst downgrades hitting stocks earlier today.
And if you thought that was the worst, “Surprise!” With reports that the FDA is expected to order JUUL off the market, the stock has lost another 10% as of this writing. Yes, the same JUUL that the company scored at a fraction of the price. According to a quick napkin calculation, it looks like Altria has lost more than three times the value of JUUL in market capitalization. Talk about an overreaction.
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As a result, Altria is down 28% from its 52-week high of $57, trading at around $41 right now. By definition, Altria is deep in its own bear market. As scary as it sounds, especially for investors with Altria as big a position as us, it is downright scary to think about situations like “what if they go after producers with higher taxes?” and “What if they regulate more?” etc
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But with extreme pessimism comes opportunity. We think this is a great opportunity to get a monster but relatively safe return. With the sell-off and the upcoming dividend increase, buying at the current price will give a fantastic return on the price of
We are not talking about a business that is losing money. We're talking about an industry leader making an addictive product at low cost and selling it in volume at a useful margin. And not to mention, it has pricing power by being an inelastic product in times of inflation. To put this return in context, inflation-matched Series I bonds currently yield something like 9% without capital growth (but principal security).
Altria's best past performances were in the years following extreme pessimism. It's not just hindsight, the basic investment logic goes like this: investing in the height of pessimism in a company that has power and has shareholders in mind always increases your chances of coming out on the right side in the long term. The key is “long term”. No one knows what the next weeks or months will bring. But in the coming years, it will likely pay off for income-seeking investors to lock in that return. Not to mention, dividend re-investors accumulate more shares at a low level. So if and when things stabilize, it has a magical effect on total returns.
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We cannot predict the next government action. We cannot predict the Fed's next action. We certainly cannot predict the war situation in Ukraine. But what we can predict with certainty is that 9% compounded annually provides a fairly satisfactory long-term return.
Altria's EPS could fall. Or they can increase. But what we can predict is that the company will continue to pay 80% of what it makes to shareholders. And the history so far suggests that the payout increases every year. Heroes are not created on the battlefield when the enemy simply folds under pressure. Heroes are created when you save and even win from a catastrophic situation. Running when the chips are down is not ideal. We continue to invest with Altria and even buy more of these options. Best of luck to all.
Disclaimer: This article is from an investment perspective only. We control our personal feelings, politics and morals when it comes to investments. We humbly request the readers to keep the discussions to the stock market.
Dividend (DGI and DRIP) and growth at a reasonable price (GARP) in the long term. Serious money. Fun short term trading. Gambling The thoughts and ideas in the articles are not professional recommendations.
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Disclosure: I/we have a beneficial long position in MO stock, whether through stock ownership, options or other derivatives. This article is written by myself and expresses my own opinions. I receive no compensation for this (other than from Search Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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