Tobacco stocks moved broadly higher Tuesday after the u.s. Food and Drug Administration (FDA) has given the industry an indicator of Philip Morris International Inc. (H) the approval of the marketing of its IQOS tobacco-heating system as a safer alternative to traditional smoking. The agency said that scientific studies have found that the transition to the IQOS cigarette system significantly reduces the exposure to harmful chemicals.
The company CEO André Calantzopoulos believes that the decision gives consumers a less hazardous option to tobacco smoking. “IQOS is fundamentally different from tobacco products and a better choice for adults who would otherwise continue smoking,” he said, per Bloomberg. During this time, Morgan Stanley analyst Pamela Kaufman said that the favourable marketing decision opens the door to a wider IQOS adoption in the united States.
Below, we take a closer look at Philip Morris and two other major tobacco companies on the point of benefit of the decision of the FDA. We will also analyze the chart of each company to identify tactical trading opportunities.
Philip Morris International Inc. (PM)
Philip Morris sells IQOS products, including heated tobacco and nicotine-containing vapor products under brands such as HEETS and HEETS Marlboro, and Marlboro HeatSticks, and the Parliament HeatSticks. The tobacco giant reported that its first quarter heated tobacco shipment volumes increased by close to 16.7 billion units, which represents a 45.5% increase compared to last year at the same period. However, management expects lower second-quarter sales due to the impact of COVID-19. From a point of view of the valuation, the company trades at almost 14 times earnings, well below the five-year average multiple of 18 times. Philip Morris shares $113.58 billion dollars of market capitalization, offer an attractive 6.63% dividend yield, and are trading 11.53% lower year-to-date (YTD) as of July 8, 2020.
The cigarette maker’s share price has been trading within 30 points in a symmetrical triangle since the beginning of the month of March. Yesterday’s development has seen buyers pile into the stock near the lower model of the trend line at $70, with prices tending to be more comfortably throughout the session to close above 50 days simple moving average (SMA). Those who enter here should consider making a profit of the order near key overhead resistance at $86 while protecting the capital, with a stop placed below the last month low at $68.37.
Altria Group, Inc. (MB)
Richmond, Virginia, Altria Group, Inc. (MB) markets of cigarettes, smokeless products, and wine in the united States. The company’s Oral Tobacco Products segment of the home to its IQOS system – posted an 11.3% year-on-year (yoy) in the first quarter, sales due to higher prices and volumes. Shipments of the division increased by 2.8% during the period, due in part to the clients of the storage of the products at the beginning of the pandemic. Wall Street has a 12-month price target on the security to $47.93, offering a 20% premium to Tuesday $39.94 close. As of July 8, 2020, Altria shares have fallen to 11.23% on the year, but issue a smoking hot 8.53% dividend yield.
Altria’s share price has followed higher along the lower trend line of a four-month ascending triangle, find a double support of the 50 day SMA. Active traders who anticipate a continuation of the increases are expected to consider setting a profit target at $49, where the price may face resistance near the 2020 high. Manage the risk by placing a stop-loss order below the June 26 low at $38.09 and raising the threshold of profitability if the stock breaks above the triangle top model of the trend.
Universal Corporation (UVV)
With a market capitalization exceeds $ 1 billion, Universal Corporation (UVV) is one of the biggest suppliers of tobacco leaves in the world. 134-year-old Richmond-based company primarily markets to manufacturers of consumer tobacco products. The dealer of leaf tobacco reported fourth quarter adjusted earnings of $1.08 per share on revenue of $632.1 million. Increased sales volumes in Africa and Asia were offset by lower sales volumes in Brazil, Europe and North America, with delays in delivery which weigh on the company’s top line. YTD, Universal stock fell 23.54%, effective July 8, 2020.
Since the end of April, the stock has fluctuated within a channel, descending to establish the probabilities of entry and exit. Traders should consider a long position of about$ 40, where the actions of the meeting crucial support on the lower channel of the trend line. In terms of trade management, take profits on a move to the ground on the opposite side at about $46.50. Reduce losses if the price fails to hold above the 25 June low at $39.68.