A stock that's lighting up

Dear Mr. Berko:
I read that you recently recommended Altria stock for growth and income. So I bought 150 shares. My broker has suggested that I also buy 100 shares of Philip Morris. What do you think of Philip Morris, and could you tell me the difference between the two companies?
— FL, Syracuse, N.Y.

Dear FL:
Back when I was in high school — when family doctors, dentists, health care workers and even veterinarians were extolling the health benefits of smoking — Johnny Roventini was one of the most popular actors on radio and TV. Few folks knew his name, but Roventini’s character portrayal became an enormously popular household name. Roventini, an actor who suffered from dwarfism, was famous for wearing a bellhop uniform while loudly but slowly enunciating one of the most famous four-word sentences in advertising: “Call for Philip Morris.”
In March 2008, Philip Morris International (PM-$82) was spun off from its parent, Altria Group (MO-$54), in order to separate its domestic business and its international business. All MO shareholders, as of the March 2008 record date, received one share of Philip Morris (worth $50) for each share of MO they held. And the smart shareholders, who held on to the spinoff they received at $50, have earned a swell gain and sweet dividends in the past six years.
PM’s executive offices are located on Park Avenue in New York, but its operations are headquartered in Lausanne, Switzerland. Its popular brands are Merit, Lark, Virginia Slims, L&M, Marlboro, Philip Morris, Chesterfield (some readers may recall that Chesterfield sponsored Ted Mack’s “Original Amateur Hour”) and Parliament, with its recessed filters.
This $81 billion-revenue company, with 91,000 employees, sells cancer sticks in 180 countries in the European Union, the Middle East, Africa, Asia and Latin America. And revenues, which were $48 billion in 2006, expect to come in at $85 billion this year. PM is also expanding its profitable presence in the e-cigarette market. Last October, management announced its acquisition of Nicocigs, a British company that markets and makes electronic cigarette products. Nicocigs has 32 percent of the U.K.’s e-cigarette market, and that should add about a dime to PM’s per-share earnings this year. Combined with PM’s huge cash reserves and a massive advertising budget, this acquisition gives PM a superb opportunity to expand its revenues and market share. And though evidence of the link between smoking and cancer is conclusive, Europeans, Asians and Middle Easterners continue to enjoy a deathly love affair with their cigarettes. And that’s grand for business if you’re a hospital, a physician or a pharmaceutical company. Analysts believe that PM’s revenues will continue to grow by 5 to 6 percent annually.
However, this growth is insignificant compared with the potential offered by marijuana, which some say will be legalized overseas by 2018. It’s believed that PM, as well as Altria, has a small cadre of pot specialists, with millions of dollars to spend, who are devising advertising and sales strategies for the time when pot has become legalized. It’s even rumored that they’ve trademarked names such as Acapulco Gold and designed packaging that highlights and identifies PM’s various brands. Future pot revenues are expected to be in the tens of billons of dollars and should produce about eight times the profit currently earned from a pack of Chesterfields or Marlboros.
Even without pot potential, PM is a steady growth and income stock for conservative retirement accounts. With earnings at $4.96 last year, PM pays a strong $4 dividend, which yields a sweet 4.8 percent. Meanwhile, 2014’s 9.8 percent net profit margins should improve to 10.4 percent this year and should continue to improve to 12.8 percent by 2018. So with expected earnings this year of $5.40 a share, management may increase the 2015 dividend to $4.30. By 2019, analysts expect PM to pay down its $21 billion long-term debt to $13 billion, earn $7.60 a share and pay a $6.10 dividend. Thank your broker for his good recommendation, and add 100 shares of PM to your portfolio as a fine long-term growth and income investment.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
© 2015 Creators.com

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