From 1926 to 2016, Altria (NYSE:MO) stock returned an average of 17.7% a year. But time and time again, investors have ignored Altria — and missed out on the three reasons why the tobacco giant, formerly known as Phillip Morris, has become one of the best-performing stocks of all time.
An addictive product
Tobacco is addictive. This one probably comes as a no-brainer, but tobacco has been chewed or smoked in some form for more than 1,000 years, and Altria has infamously produced and sold cigarette and tobacco products for more than 150 years. Tobacco contains nicotine, which stimulates an addictive chemical release to the brain.
You can see this addiction in Altria’s pricing power. Eight years ago, Altria was generating $5.6 billion in revenue from smokeable products a quarter, while selling roughly 34 million units. Today Altria generates $6.3 billion in revenue while selling 17% fewer units. Although smoking has clearly slowed this decade, Altria’s revenue has increased every year since 2011 — showing that recurring customers are willing to pay far more for the same product.
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Altria became largely successful throughout the early to mid 1900’s as cigarette smoking grew in popularity. However, as cigarette smoking peaked in the 1960’s, studies began to link the habit to several lethal lung diseases. To counteract the consequences of smoking, the government has attempted to constrain the tobacco industry