Thursday, 25 June 2015

Why I bought the half holding I sold in Altria in January back

I believe the key to successful management of an equities portfolio (personal, institutional or anything inbetween) is to keep fully in touch with newsflow and prices - and hence whether your rationale for holding (or not holding) a stock is still valid or not. 

One of my more successful stocks over the last year or two has been Altria but after due appraisal and analysis back in late January at a mid US$50s share price (link here) I decided to sell half the position in my pension fund noting:

'Altria against cash in the bank is clearly a great investment.  Within itself I think the stock is a little ahead of even a stretched reasonable valuation as detailed in my previous update linked above.  My conclusion for my pension fund holding that has fantastic gains: sell half now and if we see a sub US$50 share price then probably look to buy it back'.

Well guess what?  The share has been below the US$50 for much of June...

...and given the company earlier this week held their annual investor day now is the perfect opportunity to review whether to buy back the position sold in January.  

For investors new to Altria the 180 page plus investor day document (link here) is a treasure trove of data, information and insights.  I have studied Altria for a good few years but still managed to learn plenty including the sheer importance of convenience stores for cigarette sales in America.  

Of course all the main positive attributes I have discussed before for Altria were reiterated.  In no particular order,the longer-term goals of a high single digit EPS increase and an 80% payout ratio...

...(the latter of course which is market leading against a bunch of rough peers).

Dividend growth in line with earnings growth...

...and all of this underpinned by brand / market share dominance via Marlboro (on the former point, recall the very positive brand analysis I did of Altria a few weeks ago here)...

...and further growth opportunities in areas such as smokeless, e-cigarettes and the beverage sector holdings in companies such as SABMiller

In short could I find a reason for not believing my investment thesis on Altria and hence below a US$50 share price buying back the shares?  No. 

So I have bought them back. 

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