Altria (NYSE: MO) is one of the best-performing stocks of all time. As my former colleague Morgan Housel notes, $1 invested in the tobacco titan in 1968 was worth more than $6,000 by 2015.
Yet more important to today's investor is the stock's prospects from this point forward. Read on to learn more about Altria's key business drivers -- and whether its stock still represents an attractive opportunity for investors today.
A strong core
Altria has battled declining smoking rates for decades. Nevertheless, it continues to find a way to drive its profits steadily higher via a combination of higher prices and cost reductions.
In turn, Altria is able to generate strong and steady cash flows from its traditional tobacco products -- think cigarettes and snuff -- that it passes on to shareholders in the form of dividends and share repurchases. Out of the more than $8 billion in free cash flow the company produced in 2018, it paid out $5.4 billion in dividends and repurchased $1.7 billion of its own shares.
Incredibly, Altria has raised its dividend every year for nearly five decades, and its stock currently yields a robust 5.7%.
Altria's strong cash flow production also allows it to invest in other high-growth markets -- and few industries are growing faster than marijuana.
Altria made a bold move into the rapidly expanding cannabis market with its $1.8 billion investment in Cronos Group (NASDAQ: CRON). In return, Altria received a 45% stake in the Canadian marijuana producer, along with warrants that give it the right to increase its stake to 55% -- and gain majority control of the company -- in the future.
With Altria's marketing and regulatory expertise behind it -- along with $1.8 billion in new growth capital -- Cronos Group is well-positioned to capture a larger share of the global cannabis market that could grow to $75 billion by 2030, according to investment firm Cowen. And Altria's stake in Cronos Group makes it a relatively low-risk way to profit from the marijuana industry's explosive growth.
Another jewel in its portfolio
Altria made an even more aggressive move into electronic cigarettes, with its $12.8 billion investment in JUUL Labs. That deal gave Altria a 35% stake in a company with an estimated 75% share of the fast-growing e-cigarette market.
The deal initially drew the ire of the FDA, which has been trying to stem e-cigarette usage among teenagers. Yet recent research suggests e-cigarettes could help adults quit smoking, so it's possible that the tobacco industry could reach a compromise with regulators that avoids harsh new restrictions on the sale of e-cigarettes to adults, but with better safeguards in place to deter teen usage. If so, the steep price Altria paid for its stake in JUUL could ultimately prove to be a bargain.
Don't forget the beer
Altria has a small wine division, which produced only $691 million in sales in 2018, compared to more than $24 billion in revenue for its tobacco products. But the tobacco titan also has a 10% stake in $140 billion beer behemoth Anheuser-Busch InBev (NYSE: BUD).
Anheuser-Busch InBev dominates the global beer market with a nearly 30% share. Its portfolio of more than 500 beers includes eight of the top 10 most valuable beer brands in the world.
Altria's stake in Anheuser-Busch InBev gives it way to claim its share of the alcohol industry's profits without having to compete with the beer king and its rivals.
An attractive price
After a rough 2018 that saw its shares fall 31%, Altria's stock has rallied sharply from its lows in 2019. Shares are now up about 15% so far this year, yet they still can be had for only about 13.5 times analysts' earnings estimates for 2019. That's 20% less than the average U.S. large-cap stock, as measured by the forward P/E of the S&P 500, which currently stands at 17.
Yet Altria is far from the average stock; it's a competitively advantaged business that dominates the U.S. tobacco industry. And its stakes in Cronos Group, JUUL Labs, and Anheuser-Busch InBev give it -- and its shareholders -- even more ways to win in the years ahead.
As such, Altria stock remains a solid buy today.
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