It's no wonder Altria's (MO 0.12%) stock has lost more than a fifth of its value in just a couple of months. 

Marketing partner Philip Morris International (PM 1.39%) is getting cold feet on working with Altria to sell its IQOS heated tobacco device while also just acquiring the leading competitor to Altria's own smokeless tobacco products. At the same time, the federal government all but obliterated Altria's $13 billion investment in Juul Labs, the one-time electronic-cigarette leader.

Even though cigarettes are in a secular decline in the U.S., there remains a lot to like about this U.S. tobacco giant.

Person breaking a cigarette.

Image source: Getty Images.

A regulatory morass

Make no mistake: Altria has some hurdles to surmount. It gave up the right to have any e-cig products of its own in exchange for owning about a third of Juul Labs, which at the time dominated the market with about a 75% share. 

Since then, however, Juul has come under withering fire from the Food and Drug Administration, which blames the e-cig maker for causing a spike in teenage usage of e-cigs. The fusillade caused Altria to write down over three-quarters of its investment in Juul, only to see the FDA deliver the coup de grace in June by banning all Juul devices from being sold in stores.

While the regulatory agency has temporarily lifted the ban as it reconsiders its decision, Altria has virtually written off the entire value of its investment and says if the FDA doesn't change its mind, Juul will most assuredly declare bankruptcy.

Family ties unravel

Altria always had a Plan B by signing marketing agreements for reduced-risk products with Philip Morris, but that is in the process of disintegrating, too. 

As Altria planned for a national rollout of the IQOS device, British American Tobacco (BTI -0.24%) alleged the devices infringed on patents it held for an older heated tobacco design and the U.S. International Trade Commission agreed, prohibiting Philip Morris from importing the device into the country.

Although Philip Morris is considering ideas for getting around the ban, it's quite possible Altria will no longer be involved, especially after the international tobacco company announced its intention to buy Swedish Match (SWMAF), the top nicotine pouch producer whose Zyn brand directly competes against Altria's On! brand.

Because Swedish Match gives Philip Morris direct access to the U.S. market, something the global tobacco powerhouse hasn't had since it and Altria split in 2008, the need to partner with its former sibling has all but gone up in smoke. And since it also coldly dashed any hope of ever acquiring Altria by effectively saying that ship has sailed, it now looks like there may be bad blood between them.

Waiting for the fog to clear

Despite those challenges, I still think Altria is a buy. Although cigarette smoking is declining, it has a long, long tail and will be with us for years -- decades, even -- to come. Altria's captive market allows the company to routinely raise prices without largely impacting its operations.

Altria's a very profitable business, generating $3.1 billion in operating income last quarter and $11.56 billion for all of last year. Its Marlboro brand is also still far and away the market share leader, with almost 43% of the traditional cigarette market. Overall, Altria owns nearly half of the tobacco market.

Yet Altria is also committed to a smoke-free future, which is why it had invested so heavily in e-cigs before they were all essentially stubbed out. 

Although its agreement with Juul precludes Altria from making and marketing its own e-cig devices, that holds only so long as Juul is a viable business and the value of Altria's investment has not degraded 90% or more. That threshold is on the verge of being breached, which would allow Altria to begin actively developing a new line of reduced-risk products. It already has two products it plans to submit to the FDA for review by the end of the year or early next year.

Ready for the next phase of growth

Altria is far from being a "cigar stub" investment, or one with just a few puffs left in it before it's stamped out. Sales and profits continue to grow; it's attractively priced at less than nine times next year's earnings estimates; and it pays a safe, healthy dividend that yields 8.1% annually.

The market may have put its stock in the ash bin, but there remains significant lucrative upside potential in its shares that makes the tobacco stock a buy.