#165: Eric Schleien Discussing The Ultimate Sin Stock w/ Jason Rivera; Altria (MO)

Join Eric Schleien as he discusses Altria Group Inc (NYSE: MO)
with Jason Rivera from Value Investing Journey. Eric Schleien has
been following Altria for many years and brought Jason on after
he saw that he’s talked about it on his website. For those who
don’t know, Altria is the maker of Marlboro cigarettes and is
considered the ultimate sin stock. You can make the argument that
the stock has often been cheap due to the fact it is a sin stock
leading to high rates of returns over many decades.
About Eric Schleien

To learn more about Eric Schleien, check out his personal website
and business website. You can also reach out to him on Twitter,
Instagram, and LinkedIn.
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What Are Sin Stocks?

Sin stocks are public companies involved in activities that are
considered unethical by society, such as alcohol, tobacco,
gambling, adult entertainment or weapons. ESG investors tend to
exclude sin stocks, as the companies involved are thought to be
making money from exploiting human weaknesses and vices.
Why Do People Avoid Sin Stocks?

A common question people ask is why do people avoid sin stocks?
In reality, a stock doesn’t know you own it. As long as you
aren’t participating in a secondary offering, you buying stock in
Altria in no way contributes to the tobacco industry. However,
even though that is the reality, there are many reasons why
people avoid sin stocks. For example, there is an entire
investment industry around what is coined ESG. ESG stands for
Environmental, Social, and Governance. Companies are given a
score based on a variety of metrics. This has led to a whole new
money making scheme in the name of “feeling good” about what
you’re investing in despite the fact it makes no actual impact to
the planet. However, this ESG fad has led to opportunities for
prudent investors.
Altria Stock Valuation

Jason discusses how he values Altria. Jason assumes the company
is worth 11x EBIT which he considers high for most companies but
appropriate for Altria. That would get you to a value of about
$129.5 billion. Then, if you add cash of just under $2 billion
and subtract the company’s $28.2 billion in debt, that gets you
to a value of about $101


Most companies, I wouldn't value it. An 11 X EBIT, multiple them.
I would, again, for the competitive advantage we already talked
about, so that gets us to a value of about 129.5 billion. Plus
cash they had about just under $2 billion cash minus all of their
debt at $28.2 billion. That gets us to a value of about $101.3
billion. This contrasts to a current market cap of about $93
billion.
What’s The IRR For Altria Stock?

Jason assumes that the future returns for Altria will essentially
be their dividend of just over 7%. In addition, Jason believes
the company will be a good hedge for inflation. This IRR is much
higher than a US Treasury Bond and he believes it is a good fit
for a long-term portfolio with someone who is extremely risk
averse.
About Jason Rivera

To learn more about Jason Rivera, check out his website: Value
Investing Journey