Summary
- Altria is on a heater in the past few weeks.
- But despite the rally, the stock is still cheaply valued.
- Executing upon its new strategic directions has caused me to shift from neutral to bullish.
Tobacco stocks are a bit of a dying breed. This makes good sense given smoking rates have been declining in the US - and indeed worldwide - for decades. Any industry with a customer base that is constantly shrinking generally doesn't fare particularly well. After all, I don't see any buggy makers traded on the Nasdaq these days.
Altria (MO) is the big dog in the space and after it unloaded its international tobacco business, and then a processed food distributor, it has spent the last decade-plus as a pure-play tobacco stock (more or less). I've been pretty critical of Altria in my coverage of it here in SA, but I've actually turned the corner, and I see Altria as a big opportunity for both those investors looking for capital appreciation, and that massive dividend.
Source: StockCharts
We can see Altria has been on a heater in the past couple of months, flying from $40 to $50 since the beginning of February. That's a huge move for a nearly-$100 billion tobacco products manufacturer. The company's peer group has been dreadful against the broader market in the past couple of years, ceding 31% to the S&P 500 during that period. That's pretty ugly, but Altria, for its part, has begun meaningfully outperforming its peer group. If you're going to invest in a terrible group, the least you can do is pick a leader, and that's what Altria is today.
Finally, Altria's move has been accompanied by a huge move up in the accumulation/distribution line, which measures if people are buying dips intraday. Generally, this means that big money is buying the stock more than they are selling, and while this indicator isn't perfect, I find it to be a useful indicator of whether a rally is "real" or not. Altria's rally checks out.
