Pull up a chart of nearly any stock and compare it to December’s selloff lows. Most will have recovered. Altria Group (NYSE:MO) is the exception.
With a dividend yielding over 7% and a P/E of 11 times, when will the stop making new lows? MO stock is in an unfortunate position of getting scrutinized by the government who is targeting tobacco firms.
FDA Targets Vaping
The FDA is reviewing the teenager use of e-cigs (vaping). If it succeeds in doing so, kids may use cigarettes or even cannabis instead. Tobacco firms are investing in the latter to follow the potential future trends and to secure its steady growth.
Potential risks
The freefall in MO stock is due to the market pricing in further downside risks. If regulators change menthol or nicotine levels, this could scare off investors and send tobacco stocks lower. Investors buying shares are betting that the FDA will not succeed in changing the requirements.
And Altria’s 35% stake in e-Cigarette maker Juul must show investors that the $12.8 billion it paid is not wasted.
Your Takeaway
Look around. Notice if local vape stores are closing up because if they are, that would undermine Altria's investment in Juul. Near-term, the rapid fall in MO stock may end if more buyers step in and bet that the FDA will back down on their regulatory plans.
