Dear Mr. Berko: My stockbroker is recommending that I buy 400 shares of Altria ($23,200), the big tobacco company, because it pays nearly 5 percent. I told him that I'm not sure I would be comfortable owning stock in a company that sells cigarettes, which kill Americans. My ex-brother-in law smoked Marlboro cigarettes for 25 years and lost a lung in 1988. Unless you have a compelling reason, we won't buy Altria. Our son, who has been with General Electric for over 20 years, thinks we should buy our original shares back because he's convinced that GE's stock will double in price by late 2019. We sold 1,632 shares at $30 in December 2016. What do you think about GE? — JR, Akron, Ohio
Dear JR: I think Altria Group (MO-$58), even though it sells cancer sticks to Americans, has a good record of revenue, earnings and dividend growth and is attractive at this price. Some of the most prestigious brokerages have "buy" recommendations on MO, with a price target of $85 in the coming three years. And my neighbor thinks many of MO's wines, especially those from Chateau Ste. Michelle, compare favorably with wines that are $150 a bottle. But I understand how it feels to almost lose a family member. So stick to your guns and don't buy Altria. But would you consider Philip Morris International (PM-$77)? PM only sells cancer sticks to consumers outside the U.S.
Most folks don't know that PM was spun off from Altria in March 2008. Some say the purpose of the spinoff was to separate domestic cigarette sales from international cigarette sales. But that's a bunch of horse pucky. Lawyers and lawyers everywhere! The tobacco lawyers recommended a spinoff to protect the bigger company (PM, with $77 billion in revenues and headquartered in Switzerland) from suits against the smaller company (MO, with $26 billion in revenues and headquartered in Virginia). America has 298 lawyers per million citizens, which is the highest ratio in the world. The world's second-highest ratio is in the U.K., which has 98 lawyers per million. France has 31 lawyers per million, and Japan has seven lawyers per million. So, this sewer of American lawyers needs Americans to sue somebody or something.
Even if you're uncomfortable owning a tobacco stock, I'd certainly recommend PM to income and growth investors who read this column and to those who don't. My TSE (tobacco stock expert) believes that PM's revenues will grow to $88.5 billion by 2021, that earnings will increase to $7.30 a share and that dividends will increase to $5.35 a share. If all those things were to happen, the many millions of shares owned by Vanguard, BlackRock, State Street, T. Rowe Price, Mass Financial and others could trade between $110 and $130 a share. And there's running speculation that may be more reality than rumor that these two cancer stick companies will merge and renew their marriage vows. There would be about a 23-point premium to MO shares.
Until December 2016, General Electric was trading at $32. It used to be one of the most widely held stocks in American portfolios. But the fit hit the shan, and Americans began to liquidate their GE shares (now trading at $14.50), driving the shares down to $13 in early April.
GE, an American icon of industrial power, was formed in 1892 through a merger of Thomas "Tommy" Edison's Edison General Electric and the Thomson-Houston Co. It has 11 business divisions — GE Aviation, GE Healthcare, GE Power, GE Renewable Energy, GE Digital, GE Additive, Baker Hughes, GE Capital, GE Transportation, Current and GE Lighting — each of which suffered from various stages of dry rot, an unintended consequence of lazy management. However, there are whispers that Warren Buffett may take a $15 billion stake in the company, and James Tisch, a GE director and CEO of Lowe's, paid $18 each for 3 million shares in November. Though buying back GE might be like biting into a urinal cake, be mindful that Buffett and Tisch are keen professionals and make very few mistakes. So your son may have given you good advice.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.