We've been recommending Altria Group for the past several years, and the stock has consistently been one of our best performers. We're picking it again for 2007. With about $100 billion in sales, the company - love it or hate it - is the world's largest cigarette maker and, through its Kraft Foods subsidiary, one of the biggest food processors. In the U.S., Marlboro, the top-selling cigarette brand, continues to thrive by stealing share; it now controls 41 percent of the market. Overseas sales are growing rapidly. The company now accounts for 60 percent of cigarette sales in Mexico, nearly 40 percent in Western Europe and 25 percent in Japan.The litigation picture continues to improve, making costs far more predictable. In August a federal judge overseeing the government's landmark tobacco lawsuit ruled that she didn't have the authority to order major financial remedies, including industry-funded smoking-cessation programs. In November the Supreme Court refused to revive a $10 billion award against Altria's Philip Morris USA related to the marketing of "light" cigarettes.
Finally, there's the likely spinoff of Kraft Foods, a move that investors have long believed would unlock further value for Altria shares. "That's the key reason we're holding it," says David Dreman of Dreman Value Management, which owns 17 million shares. "As long as the companies are together, you won't get the full value for Philip Morris." The precise timing of the sale is to be announced at the company's Jan. 31 board meeting. In the meantime, Altria is selling for 15 times projected 2007 earnings and offers a fat 4.1 percent dividend yield.
