Altria is on Sale for 15 Bucks

Source from:  Motley Fool 12/18/2008

After trading up to nearly 16 bucks this morning on an upgarde, Altria (MO) is back on sale at 15 bucks as MO has lost about 30% of its market value since spinning off the international tobacco operations into a separate public company as Philip Morris International (PM), resulting in a dividend yield of 8.5%. Altria declared its quarterly dividend of 32 cents last week, with an ex-dividend date of 12/22/08 which is payable on 1/9/09. JP Morgan analyst upgrade today predicts 25% cash return on market cap by 2010 for MO plus you get 8.5% dividend yield along the way and the potential for FDA regulation as an upside catalyst as described by Fortune magazine below, naming MO a top pick for 2009: Nobody has ever accused the folks at Altria (MO, Fortune 500) and its Philip Morris USA subsidiary of being dummies. (A few other things, sure, but not that.) So when Altria endorsed legislation that would subject tobacco products to FDA regulation - a bill sponsored in the U.S. Senate by longtime tobacco company foe Ted Kennedy - you knew there had to be a reason. There is. Indeed, the proposed legislation might as well be dubbed the Altria Earnings Protection Act. For starters, the bill prevents the FDA from ever banning cigarettes. Just as important, the wording makes it extremely unlikely that the FDA will ever approve a new cigarette product, because the new entrant would have to be deemed "appropriate for the protection of the public health." The bill also restores states' ability to restrict tobacco advertising. Yet another part of the measure would require the FDA to crack down on sales of counterfeit cigarettes, which have been a drain on Altria earnings for some time. All of these provisions would be beneficial to Altria, as they would help it "lock in its already dominant market share," says Dan Clifton, a political analyst at Strategas Research Partners. (Altria currently controls about half the U.S. tobacco market.) The upshot is this: If the bill becomes law - and there's reason to think it will, since President-elect Obama was a co-sponsor - Altria's already safe dividend (current yield: 8.5%) will become even safer. So, too, will its earnings growth, which analysts are pegging at 8% for 2009. Throw in the fact that vice stocks are usually recession stalwarts - they've outperformed the S&P by an average of 12 percentage points during the past six recessions, according to Merrill Lynch - and you've got a defensive stock with generous upside. "Given the current environment, both in terms of interest rates and overall uncertainty for almost every company in the market," Citigroup tobacco analyst Adam Spielman writes of Altria, "we think this is worth seizing." Enditem