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The Best-Performing Stock of the Last Half-Century

By Ian Davis
Monday, June 23, 2008

Back in the day, cigarette smoking was a respectable business.
 
In the 19th century, Philip Morris was a luxury cigarette company and had one tiny, boutique shop on London's Bond Street.
 
In 1901, by royal warrant, Philip Morris & Co. became the royal tobacconist to King Edward VII… and with success came growth. Just one year later, the company expanded its business to the United States.
 
In 1938, the company went public… and investors have been reaping the rewards ever since.
 
Between 1957 and 2007, Philip Morris was the single highest-returning stock in the United States. A $1,000 investment in Philip Morris in 1957 would be worth about $5.8 million today.
 
Although Altria's returns are the best in the business, other tobacco companies have performed almost as well. Even today, amid declining smoking rates in the U.S., tobacco companies continue to outperform other equities.
 
Take a look at the performance of the Datastream Tobacco index since 1973. As you can see, the index has maintained an amazingly consistent 15% annualized growth rate for most of its history.
And more importantly right now, downturns in the tobacco sector do not seem to correspond with market downturns.
 
Tobacco Is Alive and Well in the U.S.
 
 
I'm not saying tobacco companies can't correct… In 1999, the tobacco index fell by a precipitous 60%. But the stocks were back at new highs a year later…
 
The fall came after the index was selling for a relatively high 23 times earnings. The companies had settled a number of lawsuits in 1998, and investors were optimistic. After an adverse court ruling in Florida, the index fell down to a P/E of 6.1.
 
The constant risk of litigation is why this sector is usually so cheap, with a median P/E of 13. But right now, it's relatively pricey…
 
Although well below all-time highs, the tobacco index is selling for 15 times earnings (18% above its median). Investors are probably bidding these stocks up, cashing in on their reputation for being a safe haven in a tough market.
 
With these valuations, I wouldn't hop on tobacco right now for a short-term trade. But as you can see, the sector has always been a good long-term hold.
 
Good investing,
 
Ian Davis




Market Notes
Cash mover Western Union hits all-time high.
 
Solar chip maker Energy Conversation makes a new high… up 150% in two months.
 
Gas guzzlers litter the lows… Brunswick, CarMax, Fleetwood, Winnebago, and Thor Industries.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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