Tobacco Dog Bites DowYour Daily Profit Hog
Baltimore, MD
Tobacco Dog Bites Dow
By Erin Beale
Yesterday's impressive rally gains went in up smoke late
yesterday, as Altria (MO: NYSE) got slapped by a court ruling
and took a heavy toll on the Dow.
Unsurprisingly, when the US District Court dealt a double blow
to Big Tobacco kings including Altria, shares took a tumble.
Prices fell nearly 9 percent to close at $44.95. The suit to
two-fold and begins with charges of conspiracy and racketeering
that first surfaced back in 1999.
Big Tobacco is charged with a marketing-to-kids scheme of
advertising and promoting that were deliberately targeted to
susceptible minors. The $280 billion suit was upheld in court
Washington court yesterday, and the judge refused to limit the
sought fines in the case.
This decision comes on the heels of a Friday Lousiana ruling
that the Big Tobacco giants will be forced to shell out nearly
US$600 million to help cover the costs of smokers who are
attempting to kick the habit.
Dog Philosophy
Ian recommended buying into Altria (MO) to Red Zone Profits
subscribers in early December as one of his Dogs of the Dow
plays. Not familiar with the Dogs strategy? It's simple,
really. Here's how Ian explained the "science" on December 5:
"There really is no science to choosing the Dogs. You buy the
Dow stocks with the highest dividend yields and watch them
outperform the market. Dogs of the Dow plays are a good buy for
the following reasons.
One: These companies most likely will not go out of business.
Two: They are financially sound and have enough gung-ho to keep
them rolling.
Three: They pay dividends.
Four: We're buying them at low prices.
The key to making good profits from the Dogs of the Dow is to
hold the plays for a period of a year to 18 months. This gives
management and the board of directors enough time to bring the
stock prices up to market value. Plus, if you sell your
investment after 18 months, any gains you pull in will be
treated as long-term rather than short-term. Check with your
financial advisor."
Rolling Out Big Bucks to the Fed
MO shares fell almost 9% on yesterday's news, but have begun to
recover this morning. We are still recommending that all Red
Zone Profits subscribers who bought into MO continue to hold
their shares.
In fact, this morning Deutsche Bank is recommending that
investors aggressively buy shares of Altria on their weakness.
On sale, if you will. It makes sense--MO has an impressive cash
flow, their Kraft brand is continually growing, and the stock
flaunts a low P/E number of 9.9 with a forward projection of
8.63. Not too shabby. We're content to hold our existing
shares.
In the long run, however, the trial could spell big trouble for
all of the Big Tobacco industry.
The government is seeking $280 billion from the industry,
claiming the profits as "ill-gotten gains" from marketing
specifically to children. Yesterday's ruling refused to limit
the plaintiff claims. Obviously, if companies like Altria and RJ
Reynolds are eventually forced to ante up, they'll have a lot of
dough to shell out. In fact, the sum would top the $206 billion
industry suit settled to 46 states in 1998.
And that could mean a big blow to MO. Though a fed win is
certainly feasible, a lot has yet to be determined before the
trial, which is slated to begin in September. Continue to hold
your shares of MO.