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Altria -- Where There's Smoke, There's Fire

01/18/08 11:11:37 AM
by Koos van der Merwe

Where there is smoke there must be a fire, and not smoke from a cigarette at that.

Security:   MO
Position:   Accumulate

All the news channels are full of it -- the US is either in a recession or pretty close to one. There is, however, no doubt that it is in a bear market, so why am I suggesting that we should buy Altria (MO)?

FIGURE 1: MO, WEEKLY. The stock price has been rising steadily since April 2003. Time to buy?
Graphic provided by: MetaStock.
Figure 1 tells you why. As you can see, the stock price has been rising steadily since April 2003. When the Dow Jones Industrial Average (DJIA) turned down in October 2007, MO continued moving up. Is it that MO is a defensive stock in times of the bear, or is there something else in the pipeline? We should not forget that Altria was originally Philip Morris, the cigarette maker, and although in first-world countries the trend is away from smoking because of health risks, in third-world countries, smoking is still very much accepted.

However, what else is there in Altria's box of tricks? When we look at the Altria Group, we see that the Altria Group has a 28.6% economic and voting interest in SABMiller. SABMiller came about by combining South African Breweries (SAB) and Miller Brewing Co. This occurred in 2002 to create the world's largest brewing company. For the fiscal year ended March 31, 2007, adjusted earning for SABMiller increased by 10%. So is this telling us something? Their profits are growing and with a listing on the London and Johannesburg stock exchanges, is Altria possibly thinking about spinning off its holding of SABMiller into a separate company? This could be one of the reasons for the rising stock price.

The indicators, however, are suggesting that the stock price of the company could correct soon. The two indicators shown are:

a. Rapid RSI Modified. This indicator is suggesting that the price is overbought and could possibly give a sell signal soon.
b. SVAPO. This indicator appeared in the November and December 2007 STOCKS & COMMODITIES and also suggests that the stock is overbought, but a sell signal has not yet been given.

FIGURE 2: MO, DAILY. The Altria stock appears to have divorced itself from the Dow. So is it a buy?
Graphic provided by: MetaStock.
Figure 2, a daily chart, shows how Altria divorced itself from the DJIA trend in October. The two indicators show that the trend is up, and that a sell signal has not been given -- yet.
So is Altria a buy? Technically, it looks as though it could be, should the stock price test the interim support line at around about $76. However, with the price telling us that something is in the wind (that is not cigarette smoke), simply by the fact that it is moving contrary to the DJIA's movement, we could buy at a slightly higher price.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Date: 01/21/08Rank: 2Comment: 

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