Philip Morris International (PM) enjoys strong international brand equity and exceptional brand loyalty, with strong growth prospects across the world while keeping its production costs low and its customer base returning for more product, says Gautam Dhingra, Founder and CEO at High Pointe Capital Management, LLC.
“Not only are the buyers addicted, but also the regulators too. As much as some people think that government is an adversary for tobacco companies, the reality is that the governments need the revenues that tobacco companies provide through the high taxes that are levied on their product. The cost of producing the product is minimal as tobacco farmers have no pricing power. Lastly, this industry is an oligopoly, and that brings with it additional intangible benefits, because oligopolies usually ensure that pricing competition will be benign,” Dhingra said.
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Dhingra says the international aspect of PM gives the company more of an edge after the spin-off of Altria (MO), and after owning the stock for many years, he continues seeing strong opportunities in Philip Morris and the Marlboro Man.
“All of these characteristics are intangible in nature and do not show up on the balance sheet of Philip Morris, but they make Philip Morris one of the exceptional businesses in the world. From time to time, when this company becomes available at a reasonable price, it offers a buying opportunity like few others. We have owned this for quite a number of years, and we continue to hold it today, because unlike in the U.S., where cigarette consumption is declining, opportunities to grow in Asia and Eastern Europe are significant for Philip Morris,” Dhingra said.