E Altria: A Stock For Bear Market Fears

The ongoing bull market is almost 10 years old and hence it has become the longest in history. It is thus natural that many investors are afraid of an imminent bear market, particularly given the high volatility in recent weeks. The last bear market caused devastating losses to numerous investors and hence these investors want to avoid having this traumatic experience ever again. However, it is impossible to time bear markets. It is also a shame to miss the great long-term returns of the stock market waiting on the sidelines. Therefore, in this article, we will analyze why Altria (MO) is a great holding, even in the event of a bear market.

Low-Beta Stocks

Investors who are afraid of bear markets should prefer low-beta stocks in principle. These stocks are characterized by low price volatility and hence they usually outperform the S&P during bear markets. Low-beta stocks usually have robust business models, with reliable and resilient earnings even under adverse economic conditions. Altria is a quintessential example of a low-beta stock with these virtues.

Business Overview

Altria is the market leader in American cigarette sales. In 2015, its flagship product Marlboro had a higher market share than the next 10 competitor products combined. The company’s operations are broken down as follows:

  • Smokeable products (86% of revenue)
  • Smokeless products (13% of revenue)
  • Wine (1% of revenue)

Altria has always faced a negative secular trend, namely the continuous decline of the percent of the U.S. population that smokes. The percent of the U.S. smoking adult population has steadily decreased, from approximately 42% in 1965 to 18.8% lately.

Despite this persistent headwind, Altria has taken advantage of the inelastic demand for its products and has thus exhibited an exceptional growth record. It has grown its earnings per share in 9 out of the last 10 years and has achieved a 9.2% average annual growth rate of earnings per share over the last decade. In addition, it has raised its dividend 52 times in the last 49 years. This impressive performance is a testament to the strength of the business model of Altria and the resilience of its earnings even under the worst economic conditions.

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