Ticket to Crazytown: Market Thoughts...

Well I haven't updated on stocks recently, but should probably say that I went to all cash except for Baldor (BEZ) Wednesday morning and then picked up one of those two stocks that I have been eyeing Phillips Morris International (PM). I have been thinking a lot about the market and how to make safe money in this our current economy and have come up with a couple of thoughts.

The first being I am going to stay away from ETF's until there are real signs of market improvement. This may sound crazy, ETF's by nature are supposed bring some stabilization, but all the ones that I have held and were eyeballing have been slowly deteriorating in share price. I am negative 20% on my account because of it. When signs truly trend a little better I will buy VTI and PWV again, but for now I am going to wait.

The second being that there is some real values out there right now. If you are a contrarian investor you should be having a field day. I am trying to find some real hard and firm value stocks with good economy proof basics. Baldor is still one of those stocks for reasons that I have spoken about before. Philips Morris International is one that should be both economy proof to the US and also provide long term growth across the world, and because smokers smoke. The others that I have been looking at is Kroger (KR), Intel (INTC), and Ship Finance International Limited (SFL). I am searching for more, but I am looking for a solid long term companies.

I am interested to know what other people think of what has happened with the economy. I have mixed feelings for the government's bailout / takeover / whatever that has occurred this week. On the one hand I am glad that they are doing something, I think that the current financial market dictates that this needed to occur. I don't like that it is my money, but I think that saving us from a complete financial collapse is a good thing. On the other hand, I am pissed that we all didn't do something six months ago when we knew that this was a possibility and when it would cost us a lot less. Beware now of the hidden inflation that will now occur. I am unsure how it will affect the everyday person, but we can't keep throwing money at sinking ships and expect for the return to add value to the economy. I am nervous that is for sure.

So if you could only choose one?

Coming back from the Philippines I realized that the world smokes. Smokes cigarettes that is. I know it is a bad thing, and I don't do it, but that doesn't mean I won't invest my future on someone else's habit.

With all that said, if you could only choose between investing in two stocks in the world, what would you choose, Altria [MO] or Philips Morris International [PM]? This whole thought process was triggered in my brain when I saw something on Bernanke again and remembered this guy only invested in one stock his whole life, the old Philips Morris company. So I began researching what Philips Morris has become today, Altria and PMI. What I found is that it is truly a tale of a value stock versus a business with a bright future.

Altria (~$21 per share) is now basically just the US cigarette market, lawsuits and all. To me the stock looks really good, it's trading at a $1 over one year lows and has an annual dividend of $1.16 (5.5%). Their story over the long term would seem to look as a long growth stock. It has been anchored down by lawsuits and government taxes in the states for the past 10-15 years now and it has affected the stock price. However, this is a S&P 5 star rated stock, which typically is tied to a low price to earnings, a good credit rating, and a strong cash flow, which this stock has. The US is a mature marketplace, and they do predict a slight fall in sales volume, but they have been diligent on price increases, stock buy backs, and seem to be still a hugely profitable company. Two aspects I look for in stocks are a good return on assets, 24.5% here and profitability, 21%. I tend to think these are good measures of efficiency for a company. Anything over 15% for both measures is really, really good. Some analysts are speculating a price per share of $26 in a year which is 23% increase from the current price plus a 5.5% annual dividend, that is 28.5% increase in value over a year. I know that is a really positive outlook, but the potential is there. The downfall is that Altria is now basically a new company again, and they haven't been always known as being the most truthful company in the past (although I have never really heard of them lying about their financials), so all of this could be just a big promotion to get investors investing. Another note is the wondering of whether the US marketplace will really grow at all or just level out. If that is true then think about this company as a pure dividend play that isn't a bank, energy, or oil company.

Philips Morris International (~$55.50 per share) is basically cigarettes around the world. The company was split from Altria so that it would be insulated from lawsuits and really grow from the rapidly expanding world market. I perused their most current financial reports and really only care about one thing, year over year revenue growth in each of the various geographic marketplaces. See when a company is this new, I don't trust the basic financial figures other than net revenue and growth. Look at it yourself here, notice the year over year net revenue increases of over 20% for Eastern Europe, Western Europe, and Latin America, and 13% for Asia. Asia being the biggest potential for huge growth in the next 10 years. Combine that with a decent dividend (3.3% currently) and a 4 star S&P rating, and the company looks like it has some potential. However, PMI recently purchased Rothman's Inc, a major player in cigarettes in Canada. It now makes this 'legal insulated' company now susceptible to lawsuits. I think that the current stock price is a little high, but after a pull back, it may be an excellent Bernanke-ish play for the long term.

So if you had to choose between these two stocks, which would you choose? Ben?