Somestocks are good for a quick pop, but you have to time it
just right. Case in point:
Netflix (Nasdaq: NFLX)
investors have seen several double-digit surges over the lastyear
. They've also seen thestock plummet by as much as a third on
more than a few occasions.
High-risk and high-reward stocks are great for kick-starting a
portfolio, and they certainly makeinvesting interesting, but many
investors have been broken by high-flying has-beens. For
instance, wireless giant
BlackBerry (Nasdaq: BBRY)
made alot of peoplewealthy as its stock price rocketed 17-fold
between 2003 and 2007. Investors who bought in at BBRY's height,
on the other hand, are looking at a 90% loss.
A chance at overnight success is great, but the single best
way to makemoney in stocks is to buy those you canbuy and hold
"forever." These "Forever" stocks, as StreetAuthority co-founder
Paul Tracy calls them, combine consistent growth andincome and
have stood the test of time. These companies enjoy a competitive
advantage through industry forces like low bargaining power of
buyers and suppliers, high barriers to entry, low threats from
substitutes, and minimal rivalry among competitors.
These companies are here to stay -- in your portfolio.
One of these "Forever" stocks is a company in one of the most
hated industries, yet the stock is in the portfolio of almost
1,400 institutionalfunds . The industry's product has been shown
tokill its customers over the longterm , and this company is the
largest among them. If you haven't already guessed, the industry
is tobacco, and the company is
Philip Morris International (
, the world's largest publicly traded manufacturer and marketer
of tobacco products.
Why should investors loveshares of a company that is so hated?
Because it has consistently outperformed themarket and provided
stable growth and income. Since the worst of the financial
meltdown, shares of Philip Morris have rebounded 143% versus 110%
for the S&P 500. That pricegain is above the 3.9%dividend
yield , a payout that the company has increased 85% since 2008.
Philip Morris has seven of the top cigarette brands, including
Marlboro, the market leader. The company sells across a diverse
market, with Asiaaccounting for 36% of internationalsales last
year, followed by Eastern Europe, the Middle East and Africa at
27%, the European Union at 26%, and Latin America and Canada at
Excluding China and the United States, the company's share of
total globalvolume increased from 24.9% in 2007 to 28.8% in 2012.
On top of an increasing share of the market, after three
consecutive years of declining volume to 2010, unit sales of
cigarettes have been increasing by an average of 2.8% per year,
to 93.7 billion units in 2012. Higher excisetaxes in Europe have
led to some unit declines, but these have beenoffset by dramatic
increases in the Asian markets.
China is where the growth lies in the industry, with 44% of last
year's estimated industry volume outside the United States. There
are an estimated 301 million people smoking in China. This number
is growing at an annual rate of 3.9%, and China had the lowest
quit rates in a survey of 16 emerging and industrialized
countries. The Chinese market is largely state-controlled through
the China National Tobacco Corp., with which Philip Morris is
establishing joint ventures.
The company has made a firm commitment of returningcash to
shareholders and has managed the trade-off between growth and
dividends superbly. Free cash flows have increased at a
13.3%compound annual rate since 2007 to $8.4 billion in 2012.
Philip Morris has consistently beaten its long-term annual target
of 10% to 12% growth inearnings per share (
) with a five-year average growth of 15%. In this year's second
quarter, the company announced a three-year, $18 billion stock
repurchase program. At the current price, this represents a
reduction in share count of about 4% each year, which should
helpsupport EPS growth. Since 2008, Philip Morris has spent $24.4
billion to buy back about 450 million shares for a reduction of
21.3% in the number ofshares outstanding .
As hazardous to your health as smoking is, Philip Morris offers
clear benefits for your portfolio's health. EPS growth in excess
of 12% per year, which includes a share count reduction of 4%,
and a 3.9%dividend are returns you would be hard-pressed to find
in the strongestgrowth stocks -- let alone a company in a mature
and stable market with forever potential.
Risks to Consider:
The risks to Philip Morris and the industry in general are
short-term scares surrounding legislation and substitute
products. The shares drop every time rumors of new regulations
hit, but legislation has yet to dent the industry's long-term
profitability or outlook.
Action to Take -->
Philip Morris International has true forever potential in an
industry with stable growth and terrificcash flow . You don't
have to like its products, but you can't deny a history of
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.