The Best Investment Idea in the Markets Today
An unusual Digest... Why we're breaking the rules... 'The best investment idea in the markets today'... A rare value stock with tremendous upside potential... Get over your bias, and consider this today...
In today's Digest, we're going to do something we rarely do...
We're going to "break the rules" and share the details on a recent, active buy recommendation from two of our paid services.
As you know, the Digest is a free publication. So while we constantly cover the big themes and ideas our analysts are writing about... and alert you to important new research... we're often not at liberty to share all the details on new recommendations in these pages.
It simply wouldn't be fair to the paid subscribers of those services.
But today, we're making an exception...
You see, at a time when most stocks are arguably trading near their most expensive valuations in history... and when real bargains have become incredibly hard to find... this opportunity is simply too good not to share with all our readers.
No, this isn't some tiny speculative stock that might double your money overnight. Rather, this is a capital-efficient "World Dominating Dividend Grower" that is currently (and likely temporarily) on sale.
As you'll soon see, it's a stock that even the most conservative investor can comfortably buy today and potentially hold for a decade or more... no matter what happens to the broad market or the economy in the meantime. And yet, it also has tremendous growth potential you won't find in most other "value" stocks today.
But before we share this recommendation, a quick reminder...
Longtime readers know it's one of the most powerful "signals" we follow: Whenever several Stansberry Research analysts agree about a single investment idea, it tends to work out very well for our subscribers who follow their advice.
The reason is simple. Unlike many other firms, we're completely independent. We aren't beholden to advertisers or the companies we're analyzing. We work only for you, our subscribers. We've also hired some of the best analysts in the world, and no one – not even Porter himself – tells them what to write.
As a result, this means our analysts sometimes have different opinions – and occasionally wildly different opinions – on the same recommendations.
Despite complaints from frustrated subscribers who would prefer we all parrot the same viewpoints, we believe this is one of Stansberry Research's greatest strengths. As Porter often says, it's what we would want if our roles were reversed.
But it also means that when several analysts do agree, you should always pay attention...
And that's exactly the situation we have today.
Our colleague Dr. David "Doc" Eifrig recommended this stock to his Income Intelligence subscribers in mid-January. Porter and his team of analysts just recommended it in the most recent issue of Stansberry's Investment Advisory, published last Friday. And Stansberry Portfolio Solutions portfolio manager Austin Root recently added it to both The Income Portfolio and The Total Portfolio, as well.
So what is this stock that Porter himself recently told us was 'the best investment idea in the markets today?'
It's U.S. cigarette and tobacco giant Altria (MO).
Now, whenever we mention so-called "sin" or "vice" stocks like these, we always receive a flood of negative feedback in the mailbag. Today will likely be no different.
Many folks refuse to invest in these firms for ethical or moral reasons. And that's fine. But remember, our job is to provide objective investment analysis.
As we often remind you, selling addictive products that people want – whether that's cigarettes, coffee, fast food, or even video games – can be an incredible business. And as Doc explained to Income Intelligence subscribers in January, Altria certainly fits the bill...
Over the past 20 years, an Altria stake has returned a steady 12.8% a year compared to a 5.6% annual return for the S&P 500 Index. That's the difference between turning an initial $10,000 stake into either $111,000 or $30,000.
After all, cigarettes are expensive and addictive. And people keep buying them no matter what. Over the years, Altria has been banned from advertising, had its products taxed aggressively, been sued for multi-billion payouts... And still the money rolls in...
By our estimates, when a smoker buys a $14 pack of cigarettes in New York City, about $6 goes to taxes and $2 goes to the retailer. That leaves $6 to Altria. After paying for costs, Altria earns about $2.24 in profits – and it pays nearly that entire amount to shareholders through dividends and buybacks.
Just how good is Altria's business?
Over the years, the company has not only earned consistent profits in good times and bad, it has even weathered a sharp decline in demand for its products. More from Doc...
In the 1960s, Americans consumed more than 4,000 cigarettes per person, per year. By 2016, that number declined to 1,000.
That's an average of half a pack per every single person in the country every day down to just three cigarettes per day, as you can see in the chart below.
And yet again, Doc noted that the money still 'rolls in'...
Despite a sharp decline in cigarette sales, Altria's business has been doing just fine...
People smoke less, as we mentioned earlier, but Altria's sales have grown from $16.8 billion in 2010 to $19.5 billion over the past 12 months.
Altria has been able to raise prices (despite already punitive sales taxes) and grow moderately by expanding into smokeless products and some wines. Cigar sales – since Altria started disclosing them in 2015 – have also risen...
On that $19.5 billion in sales, Altria has generated $7.1 billion in free cash flow over the past 12 months. That number is drastically higher than previous years, as Altria has streamlined operations and improved its margins.
But Altria isn't just a great business...
As Doc explained, its stock has also become a tremendous value, making it an ideal opportunity for conservative investors today...
Today, you can't find a better value stock than Altria. Shares are trading for just 12 times earnings and 10.4 times the more comprehensive enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). Those are the lowest levels since around 2011.
And we haven't even mentioned the dividend yield. Altria now pays 6.6%. That puts it in the top 10 yielders of the S&P 500, and it looks much safer than less profitable companies such as Ford (F) and L Brands (LB).
We consider the dividend very safe. In fact, we expect the company will raise its dividend. That will continue a run of 51 dividend raises in the past 48 years.
As Doc noted, even if the company's cash flows suddenly began to decline by 5% a year – representing a complete reversal in trend – the stock would still be cheap.
In other words, the only critical risk for investors would be a dramatic and unexpected slowdown in cigarette sales...
A slowdown that far exceeds what we've seen in recent decades.
Unfortunately, that's exactly what investors have become worried about over the last year or two. And this largely explains why Altria's shares are "on sale" today.
In late 2017, the U.S. Food and Drug Administration (FDA) announced it was considering a mandate to reduce nicotine levels in cigarettes to nonaddictive levels. More recently, it said it's considering a complete ban on menthol cigarettes.
And of course, Altria and other traditional cigarette companies are also suddenly facing stiff competition from the rapidly growing e-cigarette business.
But Altria recently made a big move to address both these concerns...
It bought a huge stake in the leading "e-cig" company, JUUL (pronounced "jewel") Labs. As Porter and his team explained in the latest issue of Stansberry's Investment Advisory...
Last December, Altria purchased a 35% stake in JUUL Labs for $12.8 billion. JUUL Labs will remain an independent company. But now, the e-cig will benefit from Altria's world-class distribution network.
Altria has some of the strongest fundamentals in the market. But many investors have questioned the long-term prospects of a company that relies on the waning demand for cigarettes in America...
With Altria's JUUL Labs investment, no one should mistake it for a dying cash cow. It has become a "forever" stock.
As they explained, the move won't just help protect Altria from the continued slowdown in cigarette sales...
It could also put it on the path to significant growth in the years ahead. More from the issue...
In the U.S., e-cig sales have risen from $1.5 billion in 2014 to $3.6 billion in 2018 – a 140% sales increase in just four years. Worldwide, sales were $7 billion in 2018. In this environment, all of the major e-cig brands are able to increase sales.
And they're just getting started. The e-cig market has decades of high growth ahead.
And again, as they noted, JUUL Labs – and its e-cig device, called simply the JUUL – has established itself as the leading company in this rapidly growing industry...
In late 2017, the JUUL had a 60% e-cig market share. The latest figures show its share at more than 75%. Last year, JUUL Labs' revenue reportedly reached more than $1 billion. Altria's investment gives the company an implicit valuation of around $38 billion.
Some investors believe that Altria overpaid for the stake, but the partnership will help ensure that JUUL Labs' hypergrowth phase lasts decades.
Altria has an extensive distribution network of 230,000 retail locations. Just think... Altria is going to help JUUL get sold in virtually every gas station, convenience store, and supermarket in the U.S. – everywhere that Marlboro cigarettes are currently sold. Altria will also help JUUL Labs reach adult smokers with inserts in cigarette packs and mailings to smokers in Altria's databases.
In other words, JUUL already controls more than three-quarters of the U.S. e-cig market today...
But with Altria's powerful distribution network now behind it, Porter and his team believe JUUL is likely to gain even more market share and dominate for decades to come.
And again, this is just in the U.S. As they noted, there is also tremendous potential overseas...
JUUL Labs has just begun to sell into international markets. JUUL has stormed the e-cig market in the U.S., but North America only accounts for about 5% of global cigarette sales.
JUUL Labs can use Altria's investment to help finance its international expansion.
But as good as this story was, it got even better this week...
You see, e-cigs have also been under government scrutiny. In particular, FDA Commissioner Scott Gottlieb has been an outspoken critic of the industry, accusing it of targeting young people with its products. And late last year he announced several enforcement actions against e-cig retailers and manufacturers.
Some have worried that e-cigs would ultimately face the same harsh headwinds that the traditional cigarette industry is combating today.
However, Porter and his team already believed this was likely overblown. For one, the data are clear: e-cigs are a less-toxic alternative to traditional cigarettes. In addition, the vast majority of e-cig smokers are adults. And JUUL Labs is already taking steps to reduce its products use amongst teens.
But as of Tuesday, even this concern has largely disappeared. As the Stansberry NewsWire team noted yesterday...
Tobacco stocks have spiked higher after the Washington Post reported FDA Commissioner Scott Gottlieb is resigning.
Gottlieb had been critical of tobacco companies' plans to combat nicotine addiction in teens.
Under Gottlieb, the FDA has cracked down on tobacco companies, restricting sales of flavored e-cigarette products that are more appealing to younger users.
Gottlieb is expected to leave within the month. And according to one of our industry contacts, the two most likely candidates to replace him are unlikely to continue his harsh regulatory stance.
In short, the two biggest risks for Altria shareholders have been significantly reduced...
Shares jumped on the latest news, and continued higher today. But they still remain below both Doc and Porter's maximum buy prices... for now. It's likely just a matter of time before investors wake up to these facts, and today's discount price disappears.
We'll leave you with a final word from Porter and his team...
In the future, far fewer people will smoke cigarettes. But we guarantee that millions of Americans will be buying e-cigs to get their nicotine fix.
With its investment in JUUL Labs, Altria has become a stock you can own for the long term without worrying about e-cigs eventually replacing traditional cigarettes... because it's becoming more of a certainty than a possibility, and Altria will benefit from the trend.
New 52-week highs (as of 3/5/19): Ionis Pharmaceuticals (IONS), Kinder Morgan (KMI), New York Times (NYT), and Starbucks (SBUX).
We'll pick back up with the mailbag tomorrow. In the meantime, send your questions, comments, and concerns to feedback@stansberryresearch.com.
Regards,
Justin Brill
Baltimore, Maryland
March 6, 2019