Two days after releasing second quarter earnings, shares of cigarette and wine maker Altria (NYSE: MO) are up 1.5%. However, that's most likely because of a favorable federal court ruling that "severely restricted the ability of approximately 4,000 plaintiffs with so-called Engle progeny cases pending in federal court to use findings by the prior Engle jury to meet their burden of proof at trial," quoting a company press release.

This means that plaintiffs in those 4,000 Floridian cases cannot use the prior case to claim that cigarettes smoked by the plaintiffs are defective and addictive and that the companies had agreed to keep those facts hidden. Instead, they'll have to establish those claims for each lawsuit. Shares of Reynolds America (NYSE: RAI) and Lorillard (NYSE: LO) were also up on the news.

While that's a blow to people suing Big Tobacco, it's good news for the companies, as it seems to reduce the potential legal liabilities of Altria and the others. Does this make for a buying opportunity? Here's a quick look at some arguments for the three possibilities.

Buy:

  • Strong dividend: The yield currently sits at 6.4% and has been steadily raised for decades. And cash flow is more than enough to cover it.
  • Acquisitions: In early 2009, Altria acquired UST, producer of Copenhagen and Skoal brand smokeless tobacco. In 2007, it acquired John Middleton Co., maker of cigars and pipe tobacco. These are smart, tuck-in acquisitions that sell complementary products to Altria's main line of cigarettes. As they grow, they'll begin to replace the revenue lost from the 2008 spinoff of Philip Morris International (NYSE: PM).

Sell:

  • Evil company: As I wrote when I asked the same question for Philip Morris, Altria is the ultimate sin stock, taking advantage of the ability to addict people to a self-damaging product. Not only tobacco, but Altria is also in the alcohol business, owning the Ste. Michelle winery in Washington state, producer of Chateau Ste. Michelle and Columbia Crest, as well as wineries in other regions. It's not a matter of making money in the market; it's a matter of doing the right thing and not owning it.
  • Declining volume: Increasingly, cigarette smoking is becoming more stigmatized here in the U.S. Volume is declining, falling 10.2% in the just-reported Q2 and by 5.9% so far this year. This isn't made up for by increasing volume in cigars and smokeless products because the revenue contributions of those two lines are so small relative to the $3.7 billion brought in by cigarettes last quarter. This volume drop is a multi-year trend.

Hold:

  • Good dividend: Even though volume shipped may be going down, the dividend is still tempting enough to make holding shares a "good enough" decision.

The final call:

While I don't buy into the sin-stock argument, I also don't think that Altria makes for a good long-term investment today, so I come down for the "sell" position. Declining volume is a real worry, and revenue is difficult to make up by increasing the price, especially in these tough economic times. And while the recent legal win by Altria and the others is good news for the company, there is still the very large liability from the Master Settlement Agreement of several years ago. Altria has to pay its share of billions of dollars a year in perpetuity, which puts an enormous, permanent cash drag onto the company.

Add in the fact that the dividend may not be as safe as some believe -- it has taken up 86% of the last year's worth of free cash flow (in line with management’s plans), leaving just $435 million for other uses -- and I believe that, for a tobacco investment, Philip Morris is the better choice.