Berko: Cancer ads won’t burn Altria
Friday, May 17, 2013 7:00 AM
Dear Mr. Berko:
I was thinking of buying another 100 shares of Altria Group Inc. because it pays a 4.95 percent dividend and because it seems to be a decent growth stock. I bought 100 shares in 2010 at $24, and it has been good to me. According to Yahoo Finance, its revenues will increase to $18 billion this year, and earnings are expected to grow by 6 percent. I think that’s pretty good. Then I saw the new nonsmoking advertising campaign that shows disgusting photos of cancer victims and thought Altria could be hurt badly by it. Now I’m thinking of selling Altria. Would you please advise me on what to do?
W.P., Bethlehem, Pa.
Please don’t ever use Yahoo’s financial site for investment information. It is a joke and speaks to the quality of its employees. This site has been a disaster for years, and its frequently incorrect or outdated data have caused some folks to make bad investment decisions.
This site often presents old data as new data and incomplete data as complete data. Too often it displays inexcusably wrong information, such as reporting $18 billion in 2012 revenues for Altria (MO-$36.52). MO’s real revenues for 2012 were $24 billion, up slightly from 2011’s $23.6 billion.
That distasteful cancer advertising campaign will have minimal impact on cigarette smoking. An effective way to reduce smoking is to belittle the habit, make fun of people who smoke so they become the object of ridicule and derision. People don’t like to be the butt end of a joke, have others think of them as fools, be laughed at or be made to feel uncool and disrespected.
A constant in-your-face advertising campaign (billboards, TV, magazines, radio) by Madison Avenue disparaging every cigarette smoker as unclean, with foul breath and rank body odor, will do the trick in a few years. It should portray smokers as morons, physically ugly, uneducable, low achievers, obese and disgusting to the opposite sex. This approach will be inestimably more effective than those ridiculous cancer-scare advertisements.
Yes, some people can get cancer, but that’s 30 years from now, and that’s a maybe. If the perception of a smoker is that of an unclean person, smokers will be perceived as dirty, ugly, grossly obese and disgusting right now, today and immediately.
MO’s revenues, earnings and dividend growth will hardly be affected by the government’s wasted advertising message. In 2013, MO’s revenues will increase to $24.9 billion; earnings will improve by 7 percent, to $2.35 per share; and the dividend also will grow 7 percent, to $1.77. Meanwhile, the consensus suggests that by 2017, MO’s revenues could reach $29 billion, with earnings coming in at $3.20 and a dividend of $2.25. And when pot becomes legal, which could become a national reality, MO will be a gold mine. MO has had several dozen popular names trademarked for years, as well as some dynamite marketing programs to be approved by the Food and Drug Administration and the American Medical Association. Lots of us recall when doctors told us that cigarettes were good for your health. In a few years, they may be able to say that pot is good for your health.
I’d be comfortable owning another 100 shares of MO. About 75 percent of operating profits derive from globally popular brands such as Benson & Hedges, Merit, Virginia Slims and Marlboro. Some 13 percent of profits derive from smokeless tobacco products, a result of MO’s purchase of the U.S. Smokeless Tobacco Co. in 2009.
Although cigarette smoking has declined 45 percent in the U.S. during the past dozen years, it certainly has become a profitable, growing business in Europe, Asia and South America. MO also owns 27 percent of the stock of SABMiller (one of the world’s largest brewers), which at some time in the future could be sold or traded for a companion investment that might add to the company’s revenues and earnings.
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