The best stock pick I will ever make.
It’s kind of depressing to think I have already made my best ever stock pick. But I set the bar high early on when I picked up (then) Phillip Morris for 19 dollars and change. But two spin-offs and a name change later, my initial investment is up over 500%, or 5 times what I originally paid for it. Let’s look back and set the table for how this investment happened.
It was February of 2000 and all the stock market seemed to care about was tech stocks, IPOs, and whatever the next big web site would be. No one cared about things like steady earnings growth, high dividend yields, or anything that was as boring and reliable as a food and tobacco stock. Philip Morris had been under a lot of pressure from some class-action law suits that were threatening the company with some enormous amounts of money the company would have to pay out to former customers who thought that the dangers of cigarette smoking weren’t adequately represented on the companies packs of Marlboro and other brands of cigarettes.
The stock had been as high as 55 dollars prior to these law suits, but the combination of high flying tech, and the looming decision against the company weighed very heavily on the (then) Dow component. Around the same time, I had just opened up my Roth IRA with the maximum I could contribute that year, $2000. I decided that my strategy would be to go for a few stocks that had long history of earnings and/or dividend growth. GE was a no-brainer. So I bought some GE. I also bought some Intel. While they didn’t have the history of GE, they were steadily growing earnings, and knowing the PC industry as well as I did, I knew that it was the 900 pound gorilla in a growing market. So I bought some Intel.
Then I came to MO. I just didn’t get it. The stock was trading around $20 but was paying a dividend of almost 50 cents per quarter. I thought it was too good to be true. Sure they might get sued, but they also owned and operated Kraft foods. Surely that would protect them from the tobacco litigation. I may have been wrong about that, but I turned out to be right about the stock. I got in just under $20 and immediately set up the account to reinvest the dividends.
It wasn’t long until the law suits against MO all went in the companies favor. Across the board appeals courts were ruling that the tobacco companies were not liable for damages against their former customers. The pressure on the stock began to immediately release and the stock climbed higher. That’s where the fun began, because so did the spinoffs. Phillip Morris changed it’s name to Altria, and IPO’d Kraft foods.
In June of 2001, Kraft went public and immediately began paying its own dividend. Not long after Altria spun-off its remaining ownership of Kraft to its shareholders. I held both these companies for a while, until just recently this year did I sell my shares of Kraft. My feelings were that the high food costs (thanks ethanol) were going to stand in the way for too long, and while Kraft may be best of breed, its an industry that I don’t want to be in for a while.
Then in April of this year, Altria spun off its international business, now known as Philip Morris International, as a separately traded stock, symbol PM. I still own both MO and PM, in fact I recently added to my position in PM, as the international business looks to have a higher growth rate.
When you add up the share prices of KFT, PM, and MO, you are over $100. Will I ever be able to do that again? I hope so.