Saturday, January 11, 2014

Trust me the Grass is still Greener Staying with these Stocks!!


Two old favorites
Today I will be looking at two companies in my humble opinion that have some value. This may not be the bottom but I find them attractive at the current price based on the value they provide in the way of dividends and consistent growth. The first company Microsoft (MSFT) an old favorite of this blog and my YouTube channel. The second company is Philip Morris International (PM). I am a big fan of tobacco stocks because of the high dividends they generate. I understand that cigarettes are unhealthy, we live in a world of free choice and many people enjoy to smoke. I like to say, "Its just business."

Trends
So how many people do enjoy smoking cigarettes? Well a recent blog entry I read form Timothy McAleenan Jr. found here: www.theconservativeinvestor.com mentions the new trends from The Global Times and I would like to share what Tim calls the Money Quote:

-“China had 182 million smokers in 1980, and nearly 282 million in 2012, it said. 
India gained 35 million smokers – bringing its total to 110 million – even though the smoking rate fell from 19 to 13 percent of the population. 
-Russia, where about one third of people smoke, has added 1 million smokers­ since 1980. -Globally, the number of smokers has climbed from 721 million in 1980 to 967 million in 2012. -The number of cigarettes smoked annually has also risen 26 percent over the past three decades.
-“The greatest health risks are likely to occur in countries with high prevalence and  high consumption,” said the study. Countries include China, Greece, Ireland­, Italy,  Japan, Kuwait, the Philippines, Uruguay, Switzerland and Russia, it said.”



PM
I can say from what I observed living in Poland for the majority of the last year and a half is smoking does not have the same bad stigma as in the U.S. This is even with graphic images of people with cancer on each pack of cigarettes sold. I personally do not smoke for two reasons. The cost of buying cigarettes and I don't want to risk a chance at damaging my health. I do enjoy a cigar or cigarette once a year at new years or some other rare occasion.

I've been long PM before this article buying them on December 20th, 2013 as I posted on Stock Twits at the same time selling Altria Group (MO). I found this move attractive because the spread of the yield between the companies were getting closer and PM has a lower payout ratio at 65% compared to MO at 80%. The growing trends listed above make me feel better about the growth prospects of PM. Now since December 20th PM stock has fell another 3.65% to a 52 week low of $82.57 as of the close on January 10th. The current yield is 4.56% almost unheard of if you would of been looking at this company early last year.

Why has PM stock lost when the market has done so well? First is PM after excise tax profit was a little shy year over year but still over 7.2 billion dollars. This makes some wonder if the growth expectations can be reached. The company also has a high debt load but this was used to finance a huge buyback. This was a good thing in my opinion. 

I mentioned Jeremy Siegel and his book "Future for Investors: Why the Tried and the True Triumph Over the Bold and theNew." see video. The video is old but the point is in the book Jeremy Siegel shows all original SP500 stocks and the best performing stock of all time was Philip Morris!! Part of this is due to people always being scared of regulatory intervention allowing investors to reinvest dividends at lower prices. The fear allows the stock to be under priced at different times.

Action plan: I recently made a small purchase of PM on Dec 20th, 2013 and received a dividend already. I am looking to add to my position. This is earnings season, so if they don't impress with guidance we could see more of a fall in the price. I do think the dividend will be a floor. I personally am looking at buying more shares at these levels.

MSFT
Everyone who has been on my channel for a while knows I am a long time owner of MSFT and was writing cover calls on my stock and reinvesting dividends. I still have my reinvested dividends but I did get called out at $35 a share a few months back. I am liking MSFT after the pull back because most of the negative news is on the finding of a new CEO. MSFT is like a bond: Safe in that you are almost guaranteed to preserve your capital if you hold the stock for a long time. You do get the added benefit though because MSFT has steady growth and the stock price goes up. The company has increased their dividend every year since 2003 something a bond can't do.

Action plan: Well I made a purchase Thursday January 9th, 2014 at $35.73. I plan on holding because I like the safety and income. There is a chance if they name a CEO people like the stock could rise to $40. Of course if they don't like the new CEO the stock could fall but this is all short term thinking. I would add under $35 a share if the latter would occur.

Best of luck!

DSF


Disclaimer: This is a personal weblog. The opinions expressed here are my own. All data and information provided on this site is for informational purposes only. Please do your own research before investing.




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