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Why Altria Stock Lost 15% Last Month

By Jeremy Bowman - Mar 9, 2020 at 1:49PM

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Shares of the Marlboro maker dipped on continued weakness in its Juul investment.

What happened

Shares of Altria (MO -0.30%) were sliding last month as the company's investment in Juul Labs continued to come under pressure and as the stock fell at the end of the month on the coronavirus-related sell-off.

According to data from S&P Global Market Intelligence, the parent company of Marlboro-maker Philip Morris USA finished February down 15%. As you can see from the chart below, the stock underperformed the S&P 500 for the duration of the month, though the gap narrowed over the last week.

^SPX Chart

^SPX data by YCharts

So what

In December 2018, Altria paid $12.8 billion for a 35% stake in Juul Labs, the leading maker of e-cigarettes and cartridges. But Juul came under heaps of regulatory scrutiny and attacks last year, for allegations that, among other things, its flavored vapes encouraged consumption among minors. As a result, Altria was forced to write down the value of its investment in Juul to just $4.2 billion at the end of January, following an earlier writedown three months prior.  

A man lighting a cigarette.

Image source: Getty Images.

The shrinking value of Juul, which was a significant component in the company's strategy of diversifying beyond cigarettes, has put a dent in its future prospects as well as the stock price. In February, worries about Juul continued as the company suspended sales in Indonesia on concerns about minors using the product, news that threw cold water on its expansion throughout Asia, the world's biggest tobacco market.  

Separately, 39 state attorneys general announced an investigation into Juul's marketing practices, and the SEC said it would investigate whether Altria sufficiently disclosed the risks of its investment in Juul. 

Like the broad market, Altria shares also fell on the coronavirus news in the last week of the month. Though the tobacco industry  is relatively protected from the threat of an outbreak, Altria has potential exposure to an economic slowdown in other areas through its ownership of a number of wine brands and its stakes in Anheuser-Busch and marijuana grower Cronos Group, as well its investment in Juul.

Now what

Through March 9, the stock has continued to be volatile but has recovered some of its losses from February. It's also outperformed the S&P 500 this month. As a recession-proof stock with a dividend yield near 8%, Altria certainly has some appeal in today's volatile market, but investors should keep an eye out for further problems with Juul.

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Stocks Mentioned

Altria Group, Inc. Stock Quote
Altria Group, Inc.
$41.65 (-0.30%) $0.12
Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
$54.04 (0.17%) $0.09
Philip Morris International Inc. Stock Quote
Philip Morris International Inc.
$98.81 (0.07%) $0.07
Cronos Group Stock Quote
Cronos Group
$2.84 (0.71%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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