Wealthy Individuals Are Accumulating Shares of This Investment that Fosters Millionaire Status
Wealthy Individuals Are Accumulating Shares of This Investment that Fosters Millionaire Status
Traditionally, the tobacco sector is known for providing high dividend yields and being recession-proof. However, one stock from this sector has seen an unexpected surge this year. Philip Morris International (PM, 0.21%) has experienced a 38% rise in 2024, making heads turn. This upward trend can be attributed to Philip Morris's successful transition into the market for next-generation smoke-free products, such as Iqos heat-not-burn sticks and Zyn nicotine pouches.
Wealthy investors have been quick to take note of this boom in the tobacco sector, with many purchasing shares of Philip Morris in the third quarter. Some notable figures include:
- Stanley Druckenmiller's Duquesne Family Office increased its holdings in Philip Morris by purchasing 245,280 shares in the third quarter, bringing its total to 1.13 million shares. Known for his impressive track record at Duquesne Capital Management, where he ran the hedge fund for almost three decades with an average annual return of 30% and no losing years, Druckenmiller continues to influence investment decisions.
- Ken Griffin's Citadel Advisors bought 1.79 million shares of Philip Morris, expanding its total holding to 2.9 million shares, or around $352.4 million. Citadel is one of the biggest hedge funds globally, with an estimated $74 billion in gains since its inception in 1990.
- Rajiv Jain's GQG Partners made the largest purchase of Philip Morris shares in the third quarter, purchasing 6.4 million shares for its portfolio, bringing its total to nearly 42.7 million shares, or approximately $5.2 billion.
The appeal of Philip Morris for billionaires
Philip Morris offers a unique blend of income, growth, and a business model that is resistant to recessions. Not only has the stock outperformed this year, but its combination of these qualities makes it an attractive proposition for hedge fund managers. Moreover, the company is at the forefront of evolving trends within its industry.
Philip Morris currently offers a dividend yield of 4.2%, which is decent for the average stock, however, it falls short compared to other tobacco companies.
Despite this, what truly sets Philip Morris apart is its impressive performance on both revenue and earnings growth, thanks to its new product offerings. Revenue in the third quarter increased by 11.6% organically, reaching $9.9 billion. Shipments saw growth across the board, with a 8.9% increase in heated tobacco units and oral smoke-free products, led by Zyn. Even cigarette shipments saw a 1.3% rise.
These positive results translated into strong earnings growth, with operating income rising by 13.8% to $3.7 billion and adjusted earnings per share rising by 14.4% to $1.91.
Management reported that the smoke-free business contributed 38% of revenue and 40% of gross profit, with its share continuing to improve. Philip Morris also announced an increase in its quarterly dividend by 4% to $1.35 per share.
Should we buy Philip Morris?
Philip Morris's acquisition of Swedish Match in 2022 granted it ownership of Zyn, and it secured the right to sell Iqos products in the US from Altria. These moves appear to be favorable for the share price, as next-gen products represent a rare growth market within the tobacco industry. Philip Morris's success in this area gives it an edge over competitors like Altria and British American Tobacco.
Additionally, Philip Morris has an advantage over Altria and British American Tobacco due to its focus on international markets, where smoking rates are higher and the decline in cigarettes is slower. In a time of uncertainty surrounding US trade policy and tariff discussions, Philip Morris's dedication to international markets could help shield the company from any potential adverse effects.
For now, Philip Morris appears to be well-positioned to capitalize on further growth in the tobacco sector and navigate any potential challenges related to trade policy in the US. Nicotine remains a significant market, and Philip Morris continues to explore innovative ways to deliver this product to consumers.
- Given the financial success of Philip Morris International in the third quarter, many prominent investors, such as Stanley Druckenmiller, Ken Griffin, and Rajiv Jain, have seen potential in investing in its shares, with the latter purchasing a significant number of shares for their portfolios.
- The unique blend of income, growth, and recession-resistant business model of Philip Morris, along with its success in next-generation smoke-free products, has made it an attractive option for hedge fund managers looking to diversify their investments in the finance sector.