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Why Philip Morris (PM) Stock Seems a Good Pick Right Now

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Despite the health related concerns associated with tobacco, one of the dominant players in this space, Philip Morris International Inc.’s (PM - Free Report) has managed to entice investors on the back of strategic initiatives. This is evident from the fact that the stock has emerged as a favorable pick following its recent upgrade to a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company has seen stock price surge 23.3% in the past three months and nearly 14.3% on a year-to-date basis. Long-term earnings growth of Philip Morris is 10.8% and it has a low beta score of 0.95, which implies that the share price fluctuates very little and provides stability amid a volatile market.

Shares of the company gained 15.4% in the past six months, outperforming the Zacks categorized Consumer Staples sector’s meager increase of 1.3%.

What’s Driving the Stock?

The company is focusing on developing and tapping the growing market of low-risk, smokeless tobacco products. Yesterday, the company announced that its reduced-risk product – IQOS (Heatsticks that heat tobacco instead of burning it) has been declared as safer than conventional cigarettes by a latest research conducted by Osaki Hospital Tokyo Heart Center, Japan.

The oroduct reduces exposure to 15 harmful chemicals and also showed improvement in measured health indicators specific to smoking related diseases like those of lungs and heart diseases compared with conventional cigarettes. The research also validated that the results obtained from Heatsticks were equivalent to those who have quit smoking.

Further, in order to facilitate manufacture of these reduced risk products, the company converted one of its cigarette factory at Papastratos into a manufacturing plant for tobacco sticks for reduced-risk product – IQOS. The plant will have an annual capacity of about 20 billion tobacco sticks. (Read More: Philip Morris Invests in Reduced Risk Tobacco Category)

The company is also engaged in extensive research for developing reduced risk tobacco products, which is in line with the guidelines set by the U.S. Food and Drug Association (FDA) regarding the tobacco products that can be sold in the country. Philip Morris has engaged 400 scientists for this project. In this regard, it had filed an application with the US Food and Drug Administration (FDA) for IQOS products in Dec 2016. (Read More: Philip Morris Publishes Update on Reduced Risk Tobacco)

Philip Morris has considerable presence in the unconventional tobacco products category. IQOS was first launched in Nov 2014 and is now sold in 20 countries. The products are anticipated to be available in key cities in over 30 markets in 2017.

As more and more people are shifting away from consumption of traditional tobacco products, there is rising competition among tobacco companies to capture market share by providing best quality tobacco products, which are potentially less harmful. Other tobacco companies like Altria Group Inc. (MO - Free Report) , Reynolds American Inc. and British American Tobacco (BTI - Free Report) have also come up with reduced risk tobacco products in order to tap into the growing preference for these products. Reynolds’ Vuse and Altria’s Mark Ten e-cigs are considerably popular in the market.

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