We recently compiled a list of the 10 Best Defensive Stocks According to Reddit. In this article, we will look at where Philip Morris International Inc. (NYSE:PM) stands against the other defensive stocks.
September is typically the worst month for the markets, however with a much anticipated rate cut, 2024 might be a different story. The current market environment is unpredictable. We’re seeing higher highs and lower lows in different categories and for risk-averse investors, defensive stocks are the best bets right now.
“Investors Must Consider Quality Stocks”
On September 7, Co-Chief Investment Strategist at John Hancock Investment Management Emily Roland appeared in an interview on Yahoo Finance to discuss the impact of the September jobs report on financial markets. Roland has a bullish view on the economy, overall, considering that only 142,000 jobs were added in August.
Roland talked about how NVIDIA is influencing the overall market condition, reiterating that the company held the power to bring the market down, followed by other giants such as Broadcom. She believes that anything more than 50 basis points does signal that the Fed may know something that the general public does not.
Roland further added that while we cannot predict a recession coming, the US economy is decelerating at an easy pace. She also pointed out that weak and incomplete economic data has added to the uncertainty, making it hard to predict economic outcomes in the short and long run.
Roland expects that the Fed will be taking cuts slowly and won’t implement drastic measures, to not spook out the market. She believes investors should refrain from taking massive risks and invest in solid quality stocks, with great balance sheets, high cash, and strong return on equity rates.
She’s particularly concerned about mega-cap tech stocks and highlighted that, while they may be attractive, these giants do have a valuation issue, with forward earnings going above and beyond 30. Roland suggests that investors must explore other quality areas of the equity market with reasonable prices such as healthcare, consumer defensive, and utility stocks.
Is a 50 Basis Points Rate Cut Needed?
To shed light on the economic conditions of the United States, New Century Advisors Chief Economist, Claudia Sahm, appeared in an interview on Yahoo Finance on September 7. Sahm was overly concerned about the number of jobs added in August and how they were not enough to outdo a mini-recession. Sahm emphasized that the status quo is giving a clear direction as to how the Fed should proceed. She suggests that the Fed should ease its policies, potentially cutting rates by at least 50 basis points, contrary to what Roland suggested.
Sahm also added that a possible explanation for the softening labor market are Fed’s policies to curb inflation, indicating the need for more economic data points. She emphasized that unemployment data alone is not enough to predict a lingering recession and that broader economic data should be taken into account.
An uncertain market calls for safe investing. With that let’s take a look at the 10 best defensive stocks according to Reddit. You can also take a look at the safest stocks to invest in now.
Our Methodology
We looked at the best stocks in the utilities, finance, healthcare, and technology sectors by sifting through multiple active subreddits. We compiled an initial list of 20 stocks and then picked the top 10 with the largest number of hedge fund holders, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A man exhaling smoke from a cigarette indicating the use of tobacco products.
Philip Morris International Inc. (NYSE:PM)
Number of Hedge Fund Holders: 70
Philip Morris International Inc. (NYSE:PM) is a prominent tobacco company that ranks sixth on our list of the best defensive stocks according to Reddit. The company behind Marlboro sells its products in more than 180 countries from across the globe. Its product portfolio contains cigarettes, cigarillos, cigars, electronic cigarettes, heated tobacco products, and nicotine pouches.
Philip Morris International Inc. (NYSE:PM) logged $9.5 billion in sales during the second quarter, up by 9.6%. As for its smoke-free product lines, revenue climbed by 18% and gross profits surged by 22%. Almost 40% of the company’s income comes from its nicotine pouches and heat-not-burn devices. Philip Morris International (NYSE:PM) plans to invest over $232 million to expand its manufacturing plant in Owensboro, Kentucky. The expansion will be completed by the second quarter of 2025 and will help the company meet the growing demand for nicotine pouches in the area.
The company aims to build a smoke-free future by introducing such products. So far, the company has invested over $12.6 billion in developing smoke-free products and has given up on cigarettes completely. By 2030, Philip Morris International (NYSE:PM) intends to become a smoke-free company by a two-thirds majority. While smoke-free alternatives are not entirely risk-free, the company’s products may deliver a reduction in smoking-related deaths by more than 10 times. Marlboro, the company’s most prominent brand is set to be dethroned by PMI’s heated tobacco product, IQOS.
By the end of the second quarter, 70 hedge funds held shares in Philip Morris International Inc. (NYSE:PM) with total stakes amounting to $9.54 billion. The largest shareholder was GQG Partners, managed by Rajiv Jain, with a position worth $3.67 billion, as of June 30.
Andvari Associates stated the following regarding Philip Morris International Inc. (NYSE:PM) in its Q2 2024 investor letter:
“Andvari invested in Philip Morris International Inc. (NYSE:PM) a few months after initiating a position in fellow tobacco company Altria. The tobacco industry is one that has consolidated to only a handful of players. For decades, the industry has more than offset the continual decline in cigarette volumes with price increases. More recently, both Altria and Philip Morris have introduced several new product categories that deliver nicotine in much safer ways: vaping, nicotine pouches, and heat-not-burn products. Nicotine pouches in particular continue to have an extraordinary growth trajectory. In the most recent quarter, the volumes of Altria’s On! pouches and Philip Morris’ Zyn pouches continued their torrid growth rates at 30%+ and 70%+ year over year, respectively.
For Philip Morris and Altria, their margins are high, returns on equity and capital are high, and both trade at what Andvari views as cheap or very cheap multiples. Given the non-zero chance of a “nicotine renaissance” aided by less harmful products, we do not think the future for these companies is as dim as the market seems to think.”
Overall PM ranks 6th on our list of the best defensive stocks to buy. While we acknowledge the potential of PM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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