Missed Buying Philip Morris in the 1980s? You've Got Another Chance

I recently bought some shares of Philip Morris International (PM). It's the second largest seller of cigarettes in the world. Excluding the US, which is the domain of Altria (MO), PM controls 16% of the market worldwide. I'm sure you heard of the Marlboro brand.

While I think the stock will be a long term winner, I'll start off with reasons not to buy:

1. PM's biggest market is Western Europe, where it makes 50% of its sales and holds 40% market share. Cigarette volumes in this mature market, because of smoking bans, taxes, and other regulations, are declining and are expected to continue to decline in the long term.

2. Tobacco lawsuits are on the rise internationally.

3. Earnings performance may be volatile, as it will likely swing with crests and troughs of developing nation economies.

4. Selling in developing nations also has some political risk. Governments may change; their views on tobacco might also.

Reasons to buy outweigh the above risks:

1. While it has around 30% market share in South America, close to 22% in Africa, Eastern Europe, and the Middle East, and about 16% share in Asia (not including China), PM has lots of room to grow, especially in Bangladesh, China, India, and Vietnam.

2. China loves smoking. PM has access to this huge market (the largest in the world) through a joint venture with the world's largest tobacco producer, China National Tobacco.

3. While cigarette volumes are declining in Western Europe, international volume is expected to grow over the next two decades at an annual rate of 1 to 3%.

4. A recently started cost savings program is expected to save about $1 billion over the next three years.

5. Share repurchases should total over $13 billion over the next two years. That's around 12% of PM's current market cap.

6. All of the above should increase earnings. The falling dollar will give an extra upward push.

7. The dividend, now hovering around 3.8% (annual dividend is supposed to be $1.84/sh), should also rise. Payout is provisionally set to 65% of earnings.

8. PM should be immune from US lawsuits. People around the world aren't as litigious as they are in the US. Despite all the lawsuits in the US, the old Philip Morris, then Altria, did pretty well. Imagine that, but with less suits for PM.

9. Consisting pretty much of members of the old Altria board, management is solid. CEO Louis Camilleri has a wealth of experience, particularly with emerging markets.

10. PM sells an addictive product, and one of the world's most recognizable brands.

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