Selling Altria…..It’s Been Great..

No, it has nothing to do with any “moral objection” to selling cigarettes. I fear the legal landscape is bout to change in a very negative way..

First, Altria said yesterday:

In a 5-4 decision, the Supreme Court today ruled that a lawsuit involving “lights” cigarettes brought under the Maine Unfair Trade Practices Act was not barred by federal law.

“While we had hoped for a dismissal based upon federal preemption, it is important to note that the Supreme Court made no finding of liability. We continue to view these cases as manageable, and the company will assert many of the strong defenses used successfully in the past to defend against this very type of case,” said Murray Garnick, Altria Client Services senior vice president and associate general counsel, speaking on behalf of Philip Morris USA.

The Court said that the plaintiffs “still must prove that [the companies’] use of ‘lights’ and ‘lowered tar’ descriptors in fact violated the state deceptive practices statute.”

Today’s decision came in Altria Group, Inc. v. Good.

The decision is a horrible one in that it now opens all businesses to suits that would have ordinarily been funneled to Federal Court to State Court where we all know nothing good can happen. At a time when the US is fighting to house its share of international business, increasing litigation costs is not the way to go. But, that is for another post.

Altria. It has been a wonderful investment bought back in 2000 for a now adjusted $4 a share it has produced shares of Kraft (KFT), sold, and Phillip Morris International (PM), still held. It has also produce thousands of dollars in dividends over the years. I will hold PMI as it yields 5%, has great growth prospects and little ligation risk.

But, I fear things are going to take a turn for the worse here domestically and with already owning shares of the international tobacco operations, it is time to exit. Will the upcoming purchase is UST (UST) help earnings? Yes. Will it offset the upcoming deluge of lawsuits against the company? Not so sure. Having Tom Daschle at HHS is also a bad omen. Whatever grand plans he has for universal health care will undoubtedly be funded in part on the back of cigarette companies through litigation or its customers through oppressive taxes.

The irony of the tax argument is that it is a “negative” not “progressive” tax. We know the less education a person has, the more likely they are to smoke. We also know that those with less education tend to be lower income earners. It this case, raising taxes to these addicts decreases their disposable income to fund grand ideas of health care for all. Nice…”soak the poor”

This is also a result of better opportunities for the funds. Do I think the price of Altria (MO) will double in the next 12-18 months? No. I have a high degree of confidence the price of oil will though. I am buying that through the DBO (DBO) and DXO (DXO) ETF’s.

Disclosure (“none” means no position):Long PM, DBO, DXO, none
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