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Hi guys sorry to interupt your options talk, but does anyboby else think <MO> is cheap? I'm tying to value it now which is always the hardest part for me. As Buffett said, the only two thinks that matter are price and value. Price is quoted everyday in the paper but value is what we have to calculate.

Using Value Line, I have come up with a quick and dirty valuation of $84/share using next year's(1999) est. free cash flow ($3.35) divided by .04 (k-g). It looks cheap compared to its price around $39)but this valuation does not include the tobacco litigation
liability which could be a huge number.

Anyway it could be a 50 cents on the dollar type of investment that value guys love. Assuming it goes to 100 cents on the dollar in five years, the average annual return would be over 20% (100%return/5) which isn't bad compared to the long-term return of the market (10%-12%).

Any thoughts on alternative methods to value <MO> ?

Thanks.

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Hi guys sorry to interupt your options talk, but does anyboby else think <MO> is cheap?

Try searching recent Boring Potfolio articles for TMFRalegh's assessment of MO. IIRC he concluded that MO's non-tobacco business is worth about $35 a share, which means the tobacco business is selling for less than $5. It's definitely a gamble against the litigation costs, but so far MO has passed all those costs on to the smoking public.

(If you can't find it in the Bore port section, look under Fool on the Hill. I just can't remember where he published it.)

Elan
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I can't remember his name,but he was a quest on CNBC today and he valued MO @ $50.00...BUT THAT WAS WITHOUT THE TOBACCO BUSINESS,JUST THE KRAFT FOODS AND MILLER COMPANIES..sounds like value for those who have a little extra cash to lay away for awhile..and still get 4% div. close to MM % ...If MO has hit its low.???

Have a great country DAY
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the average annual return would be over 20% (100%return/5)

I don't know about the rest of your analysis but the above calls it all into question. You have to take the 5th root of the multiplier form of the return. In other words, 2^(1/5), which is around 1.149, or a 14.9% annualized return.

Brian
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Thanks Brian. Correct me if I'm wrong but isn't the formula (Ending Value/Beginning value)^(1/(#periods-1)or 2^(1/4)= 1.198%? Thanks
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Thanks Elan. I found an artile by Dale Wettlaufer on the Boring Portfolio (3/8/99) that values the non-tobacco businesses at $30-$35 share and the tobacco business at $65-$75 share with the unkown being the litigation liability. However, I don't fully understand his valuation methods and I have a question in to him. I will let you know what he says. Thanks again.

P.S. In the future, how do I attach an article to this message board? - I'm a rookie.

Longtermguy
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(Ending Value/Beginning value)^(1/(#periods-1)

No -1. This is probably easiest to see with 1 and 2 years. Consider 1 year. Then the formula (with the -1 removed) becomes (E/B)^(1/1), or just E/B, which is what one would expect. For 2 years, you'd expect to take the square root, and the formula is (E/B)^(1/2).

Also, if you're going to give the final number as a percent, you need to subtract 1. So for doubling in five years, you'd have (2/1)^(1/5) = 1.1486 as a multiplier, or for the percentage form: (2/1)^(1/5)-1 = .1486 = 14.86%.

Brian
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OK Brian. I guess I need to find a way to value the company higher to get my 20% return I'm looking for or maybe a lower stock price. I'll keep trying thanks.
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<< Any thoughts on alternative methods to value <MO> ? >>

See the Advanced Michaelis Analysis board. AMA specifically looks for cheap value stocks.

The Foolish Four "Current Dow Order" lists MO as a stock not to buy.


Washu! ^O^
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