Philip Morris - A Stock For Wealth Or Poverty (MO) Message Board

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Non-Tech : Philip Morris - A Stock For Wealth Or Poverty (MO)

MO 58.05

-0.6%

Dec 19 3:59 PM EST

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To: md1derful who wrote (6200)	4/22/2001 2:16:42 PM
From: Ian@SI	Read Replies (1) of 6439

From this week's Barron's interview with Gabelli Value Fund manager, Barbara Marcin... Whole interview for subscribers at: interactive.wsj.com Q: Talk about Philip Morris. A: I bought Philip Morris in the middle of last year when it became evident we had reached a peak in tobacco litigation. One sign was when RJR Nabisco didn't split its food and tobacco operations but sold the food portion to another tobacco company -- Philip Morris. That's when the tobacco discount started to go away, and that seems to be continuing. Over the next six months or so you are going to continue to see another couple of multiple points on the company because it is still at the higher end of the discount to the S&P 500 it's averaged the last five years or so. It trades at 60% of the S&P multiple. It is trading at about 12 times 2001 earnings and the S&P is about 21 times. It is still at a low relative price-earnings multiple. Longer term, the company is going to be able to generate operating profit of 8%-9%, which is terrific. The food profit growth has been 2% or so. That profit growth is going to be faster because of the integration of Nabisco and the synergies from that. That's in the numbers. The tobacco performance has been picking up because the international tobacco market has been improving. The last year or two has been terrible in Eastern Europe, and now sales are picking up. Volume was up about 12% in Eastern Europe in the second half of 2000. Sales in Western Europe and Japan are good. Tobacco profits are improving. Earnings can grow 12% or 14% longer term because the company is generating about $10 billion of free cash flow a year and it is using that to buy back shares. Okay, so no secrets there. Also, it is going to IPO about 15% of Kraft this year, and that will continue to shrink the tobacco taint and highlight the value of the food company. I still see relative multiple expansion ahead for Philip Morris and a good solid story. Q: You started buying this at what level? A: I started buying it last May in the mid-20s. Over the next six to 12 months, I think it will move to a 13-14 multiple, and I'm looking for earnings of $4.70 a share in 2002. Q: Up from how much this year? A: Around $4.10 this year. At 13-14 times next year's earnings, I get $60 to $65, and with the Kraft IPO I'm comfortable we're going to get there. Q: Is this also a classic defensive play? Have you tried to build a more defensive portfolio? A: Over the last few months that is probably true, but I started buying this midyear last year.

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