Investors are looking for safe haven assets in the volatile economy. The recent pullback in oil prices, slide in bank stocks, global growth issues and uncertainty about the timing of a Fed rate hike are weighing on investors’ sentiment.
However, tobacco seems to be a safe sector to invest in at present. These companies stand to benefit from the addictive nature of tobacco. While smoking rates have, in general, been declining in developed countries, it has been on the rise in the developing nations.
That being said, leading tobacco maker Altria Group Inc. (MO - Free Report) might therefore be an intriguing investment choice right now.
With a market cap of $102.7 billion, the Richmond, VA-based company enjoys a broad geographic and product diversity as well as strong growth potential.
Why Altria is a Good Choice
VGM Score: Altria carries a VGM score of B. Here “V” stands for Value, “G” for Growth and “M” for Momentum and the score is the weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select the ones that are likely to outperform. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score.
Altria fares well in the style score system too, with a Growth score of A.
Rank and Estimates: Altria, a Zacks Rank #2 (Buy) stock, has had a good run so far this year, gaining around 8.8%. Over the past 30 days, analysts have become increasingly bullish on the company, with 3 out of 5 estimate revisions moving north for fiscal 2016 earnings.
Quarterly Results and Outlook: Altria top and bottom-line improved 6.0% and 14.3% year over year, respectively, in the first quarter of fiscal 2016. The company’s cigarette shipments improved 1.2% in the quarter driven by retail share gains by its flagship brand, Marlboro. Supported by lower excise tax levied on products, gross profit went up 7.3% from the year-ago quarter to $2.65 billion. Operating income increased 5.98% to $2.04 billion.
Further, in Jan 2016, Altria announced the implementation of an initiative that is expected to deliver approximately $300 million in annual productivity savings by the end of 2017. Part of the savings is to be realized through reduced spending on certain infrastructure and will be invested in brand building and regulatory capabilities. Such initiatives are expected to help the company reap higher profits over the long term.
e-cigarette Business: Altria is steadily expanding its presence in the e-cigarette market with the MarkTen and Green Smoke brands. Further, to boost unconventional tobacco products, the company expanded its strategic agreement with Philip Morris International Inc. (PM - Free Report) in Jul 2015. The companies will work on a joint research, development and technology-sharing framework for developing e- cigarettes.
Pricing: Altria remained afloat amid declining volumes in the cigarette industry on the back of positive pricing. The company countered the unfavorable tax environment with price increases. The regular market share gains by the company’s brands despite repeated price hikes in several markets reflect the strength of its business model and key brands.
Other stocks in the food and meat processing sector worth considering are The Estee Lauder Companies Inc. (EL - Free Report) , Flower Foods Inc. (FLO - Free Report) , both carrying a Zacks Rank #2 (Buy).
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