30Jul3:20 pmEST

Make Smoking Great Again

High-yielding tobacco stocks, namely Altria (MO) and Philip Morris (they used to be one in the same before PM spun-off the international business years ago) are classic examples of defensive names in which one can ''hide out" during risk-off periods in the market. 

Clearly, cigarette smoking is not nearly as ubiquitous as it was, say, during the 1940s and 1950s. One need not look further than any film noir from that time period to see characters smoking what figures to be a pace of about two-to-three packs a day. 

With this in mind, it is all the more impressive to see MO and PM both did fairly well in recent years considering 1) The increased anti-cigarette legislation around the country 2)  The defensive nature of the stocks 3) Various social stigmas against cigarettes (i.e., soda and candy still is seen nowhere close to as dangerous a health risk as smoking). 

Of course, historically low rates did not hurt the bull case for MO and PM, either, as investors seeking dividend payouts look to tobacco (as well as other iconic safety plays like KO PG JNJ, etc.). 

Lately, though, MO and PM have undergone corrections, and steep ones at that. MO dropped from a $77 handle in June 2017 to a recent low of $54.23 in April of this year. 

At issue is whether they are now attractive from a value perspective. I suspect if we see a further unwind of growth into Labor Day and perhaps into October, then MO would indeed be a nice buy here if for no other reason than that divvi (especially if TLT does not collapse and rates stay reasonably low).

On the MO daily chart, below, we can see $59 as a clear upside trigger to negotiate the potential base bottom highlighted. 

So while Fed-watchers will have a bevy of points to keep track of this week with the FOMC, I will have one eye on the defensive and high-yielding MO for a decent risk/reward long setup, especially if high-flying tech names show more signs of needing time to reset into autumn. 

The Slide is Still Closed Stock Market Recap 07/30/18 ...


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