During the first quarter, billionaire investor Philippe Laffont of Coatue Management added one of my favorite stocks to his portfolio: Philip Morris International (PM 0.73%). The tobacco company has the rare combination of being a growth stock in a defensive industry.
Laffont is best known for being a tech investor, and this can be seen in the makeup of his portfolio. Among his top-10 holdings are Meta Platforms, Amazon, Taiwan Semiconductor, Microsoft, Nvidia, Spotify, and Atlassian. However, he will venture into other industries and has large positions in utility Constellation Energy and industrial giant Eaton.
So, while Philip Morris International is a departure from his typical technology investment, it's not completely out of his wheelhouse. During the first quarter, he bought just over $220 million worth of the stock. It was his fourth-largest purchase and second-largest new addition, behind a $555 million investment in data center developer CoreWeave.
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Why Laffont may like Philip Morris
There are a number of reasons why Laffont may have invested in Philip Morris. First and foremost is that it has become a growth company led by its Zyn and Iqos smokeless products.
Zyn is a flavored nicotine pouch that has taken the U.S. by storm. It is particularly popular among young adult males, but has gained traction with office workers and women. A large part of its appeal is its subtlety, as it doesn't have the smell of cigarettes or the mess of chewing tobacco. It's also promoted as an alternative to regular tobacco products and has gained a lot of social media buzz.
The product has been a huge growth driver for Philip Morris, including in Q1 when Zyn U.S. shipment volumes surged 53% to 202 million cans. Some of that was from retail inventory restocking, but consumer demand for Zyn remains high. As such, Philip Morris increased its full-year Zyn guidance, with it now expecting to ship between 800 million and 840 million cans, up from a prior outlook of between 780 million and 820 million cans.
Likewise, Philip Morris' Iqos heated tobacco product has been gaining popularity in international markets. The product uses a battery-powered device that heats tobacco sticks to produce a nicotine-containing aerosol without combustion. Like Zyn, it is considered an alternative to smoking. It's marketed as a premium product and has taken off in such markets as Japan.
Last quarter, the company's heated tobacco units (HTUs) volumes, which includes Iqos, climbed nearly 12% to 37.1 billion units. The company said that in-market sales (those to end users) rose 9% in Japan and more than 7% in Europe, while it also began to see strong growth from cities outside of these markets.
Philip Morris has also bought back Iqos' U.S. rights from Altria, and will look to broadly roll out the product in the U.S. once its newer Iluma system gets approved by the U.S. Food and Drug Administration. Currently, the company is piloting Iqos in Austin, Texas, with its older heating device. Iqos' entry into the U.S. could be a nice driver for Philip Morris. There would be no cannibalization of existing customers, as the company does not sell cigarettes in the country.
One of the big benefits of both Zyn and Iqos is that they also have much better unit economics than traditional cigarettes. Philip Morris has said that Zyn has six times better product contribution levels than traditional combustible tobacco products, while Iqos has around 2 to 2.5 times. That means that both are more profitable for the company to sell than cigarettes.
In addition to the strong growth coming from its smokeless portfolio, Philip Morris does not face the same issues as many other tobacco companies that sell cigarettes in the U.S. Cigarette volumes in the U.S. have been seeing a steep decline due to health concerns and the popularity of vaping and products like Zyn. Meanwhile, illicit Chinese products tend to dominate the U.S. vaping market since they are flavored, and the U.S. government has not been able to stop their inflow.
Instead, Philip Morris has been able to produce modest cigarette volume growth in its international markets, where smoking tends to be more socially acceptable. This, combined with strong pricing power, is still leading to solid growth in its traditional cigarette business. At the same time, Zyn and Iqos are its growth drivers.
Is Philip Morris stock a buy?
While not entirely immune to a global recession, Philip Morris is about as recession-resistant as they come, thanks to the steady demand for its nicotine products. The company also benefits from having a global manufacturing network, which reduces its exposure to tariffs. For example, Zyn is manufactured in Kentucky, and the company is building a new facility in Colorado to meet growing demand. Philip Morris often operates factories close to its end markets, including major sites in Poland for Europe and the Philippines for Asia.
At the same time, the stock is attractively valued. It's trading at a forward price-to-earnings (P/E) ratio of under 23 times, based on the analyst consensus for 2025, with a PEG (price/earnings-to-growth) ratio of under 0.35. Stocks with PEG ratios below 1 are generally considered undervalued.
PM PE Ratio (Forward) data by YCharts.
Given its defensive nature, along with its growth and valuation, Philip Morris remains one of my favorite stocks. As such, I think investors can follow Laffont's lead and be buyers of the stock around current levels.
