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Tobacco companies are hated by the public but the stocks are very tempting financially. Over the weekend, Barron’s looked at Altria (MO):

At around 18.50, Altria has one of the lowest price/earnings ratios in the global cigarette industry. It also has one of the highest dividend yields: 7.3%. The stock trades for 10.6 times projected 2009 profits of $1.77 a share and 10 times estimated 2010 earnings of $1.87. Even Reynolds American (ticker: RAI), with weaker brands, sports a slightly higher P/E on a 2010 basis.

At its current price, Altria's stock appears to have little downside and significant appreciation potential. One of the company's prime assets is a 27% stake in international brewer SABMiller (SAB.U.K.), which is worth $11.5 billion, or 30% of Altria's current market value.

Altria has lost some cachet in the investment community since the 2008 separation of its international tobacco operations. The faster-growing spinoff, Philip Morris International (PM), trades around 49, or for 15 times projected 2009 profits, a sizable premium to Altria.

Those are very solid numbers. I’d add that the company has consistently met or beaten earnings for the past few quarters, so it may be going for even less than 10 times next year’s earnings.

Posted by edelfenbein at November 9, 2009 10:26 AM