Part 2

In order to help our followers maximize their profitability, we have decided to analyze the performance of some of the biggest companies within the two ETFs (XLP & XLK).


Altria Group Inc. (MO)

Company background and financial performance

Our next stock-pick from the XLP would be Altria Group, Inc. (MO).

Based in Virginia, US, Altria is one of the world’s largest producers and marketers of tobacco, cigarettes and related products. For those who don’t know Altria, we shall say that it is the parent company of Philip Morris, the producer of Marlboro cigarettes. Moreover, Altria Group also maintains large stakes in the Belgium-based brewer ABInbev, the e-cigarette maker JUUL Labs, as well as in Cronos Group (Canadian-based cannabis company) and others.
In fact, it is important to say that the tobacco producer has evolved with the changing industry dynamics. Due to the rising health consciousness and increased government regulations to discourage smoking, Altria has been moving beyond traditional cigarettes and has started expanding in the smokeless category. In fact, the company’s revenues from products such as IQOS have kept on rising and it has been a huge success in the US and in many countries around the world.

The company’s sales have been quite stable over the past few quarters. We have seen a decrease in the net profit lately due to the coronavirus pandemic. Currently, the company’s P/E (price to earnings) ratio is only 8.50x, meaning the stock is still very cheap. As a matter of fact, Altria Group beat analysts’ expectations in each of the past 4 quarters and delivered better than expected earnings. In the most recent third quarter the company delivered $1.19 per share vs. the $1.15 expected by analysts (3.50% surprise). In fact, among the main reason for the company’s continued success even during the coronavirus pandemic is the essence of the products it sells. In other words, tobacco and cigarette products are considered basic necessities and the leading companies producing these products report solid results even during such a pandemic and an economic slowdown, which in turn is good for investors who wish to own the stock.


Technical analysis

By looking at MO’s daily chart, we shall say that the stock lost quite a lot of its value back in the beginning of the year when the huge sell-off occurred on the market. In fact, the stock went down from the $51 highs in January to reach the lows at $31 on the 23rd of March when the whole market bottomed out. Since then, a massive bullish rally has taken place, sending the price up 45% to the $45 highs in the beginning of September. Currently, the stock is trading at the $37 lows and is very close to testing the first key support mark at $36 from which it managed to bounce once the price tested that level in the end of October. In other words, lots of buying pressure has been taking place at that strong support mark and that has been motivating investors and traders to buy the stock at that point and own the leading tobacco producer at a decent discount from the highs.

The technical indicators, such as RSI, Stochastics and Bollinger bands have already gone down to the oversold territory and started giving bullish indications. Furthermore, the 61.80% Fibonacci retracement level matches perfectly with the strong support at $36, giving more reasons to believe the price will bounce from that level again.

Chart: Altria Group (MO)

We will start buying the stock at the first key support at $36 where the price would be forming a double bottom bullish figure and is expected to bounce again from that level. In case the price drops below that level we would be adding more to our buy positions at the next support at $34.50-$35 in order to improve our average cost basis. Our initial profit-taking goal is set at $40, followed by the longer-term target at $43-$45 where we would be fully cashing in our profits and wait for another pullback so we could possibly buy the stock again in the future.

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