Altria Confirms further splits with Philip Morris International

Through all the Surgeon General Warnings, packaging pictures, stop campaigns and legal battles, cigarettes continue to draw both criticisms and profits. The world's largest cigarette company Altria (MO) laid out plans to spin off the International arm of the Philip Morris business.

PMI (Philip Morris International), the maker of the flagship Marlboro brand will now have complete and independent control of operations in over 160 countries. Altria will retain the Philip Morris USA division and will provide specifics of the spin-off after the annual board meeting in January. The International business dwarfs US operations with a revenue disparity of $48Billion to $18Billion. Smoking is a cultural necessity in some regions around the world and despite oncoming legislation is not going anywhere, anytime soon. So smoking kills, which is really terrible, but does that make it a bad investment?

Altria has been instrumental to the Dow's resurgence over the last couple of years and has rewarded shareholders handsomely. The company spun-off its majority ownership in Kraft Foods (KFT) paying shareholders with Kraft Shares and the same thing is to happen with PMI. Now the Kraft spinoff gave investors the peace of mind of having a solid food company without the underlying legal issues associated with cigarette companies. This will, for obvious reasons, not be the case with Philip Morris International. Investors here are getting a pure smoking play in the massive International markets.

The single biggest reason for the spinoff? Valuation. The international business was being dragged down by being associated with its American counterpart where smoking volumes are falling. Its been reported that smoking volume in America fell 3% while International volumes rose over 3%. The only way to truly extract the value in the International business is to spin it off and the thinking is that PMI is going to perform better individually than packaged with Altria in the future of cigarettes.

This is now going to become a cigarette pure play and for those investors confident in the future of smoking there will be no better investment in that industry. So should investors buy MO now or wait for PMI? While the board meeting in which the split will be detailed is 5 months from now Altria is still a solid stock to own and at a price under $70/share is a very reasonable investment. Why? Well for starters, a 4% dividend yield and an expansive array of business lines. Altria also runs the financial segment of Philip Morris and owns a stake in the producer of Miller Lite beer among others.

Legal battles are withering away for the cigarette makers and the overhang of having to pay additional massive settlements is nearly gone. The best part as an investor is that the majority of your customers are addicted for life to your product. So you should be addicted to PMI stock, and until that's spun off, be addicted to Altria.

Disclosure: Author holds no position in any companies mentioned at time of writing

Consumer Confidence Slips, Market Tumbles from Uncertainty

A second straight day of falling economic metrics gives way to a second straight day of losses for the markets. Fresh off the heels of Monday's Housing report, in which housing sales fell to a 5 year low, came this morning's Consumer Confidence metrics. The Consumer Confidence Index fell from previous month high levels of 111 to around 105 and further economic fears clouded American Markets.

Federal Reserve minutes came out also and pulled markets down further as talk centralized on the possibility of the housing slump being more prolonged than initially thought. Investors took this sentiment from the Fed as a sign to head for the door leaving the Majors (Dow, Nasdaq and S&P) down across the board about 2%.

Will this mean that the Fed will need to provide the market with the needed September interest rate cut? Investors seem to be hoping that the rate cut will come and the markets will more than likely continue in this drifting pattern till the interest rate policy is known. The Financials led the sell off today as earnings estimates are being trimmed left and right for the Investment Banks and Major Financials. Goldman Sachs (GS), Morgan Stanley (MS), Bear Stearns (BSC) and Merrill Lynch (MER) all were sold off substantially today with Lehman Brothers (LEH) being the biggest victim of the selling. Citigroup (C), Bank of America (BAC) and Wachovia (WB) were also sold heavily showing that the dip in the financial sector was widespread.

The selling was broad across North American markets with all sectors seeing red. The Fed revealed that it had hoped the market would, in essence, fix itself but that clearly has not been the case. Now although the American economy is still in good shape, to create market stability here the Fed has really no choice but to interject again and produce an Interest Rate cut soon.

Bulls End The Market Week in Control

A strong finish to the week for American Markets as investors piled back into stocks after some surprising news. July New Home Sales were stronger than expected and that lifted sentiment across the board. Deep in the midst of a so-called credit crunch and fears of a creeping recession the numbers highlight that through it all the economy is still stable and healthy.

The Dow went forward 140 points (1%) while the Nasdaq and S&P fared slightly better. On the Canadian side positive bank earnings at Toronto-Dominion (TSE:TD) led the TSX index higher but Royal Bank (TSE:RY) faltered despite profit increases. On the American side brokerages went higher together today following the general market despite Morgan Stanley (MS) cutting its retail sales outlook.

Investors have seemed to calm themselves of fears of recessions and credit crunches for the time being, which bodes well for the sustainability of the recent recovery of the major indices. The Dow sits about 750 points from its highs of the year meaning that the losses from those highs now sit at only about 5%. I believe its safe to say that the markets have stabilized the so-called correction, with the help of the Fed, and are now looking ahead to future interest rate discussions.

Merger Mania props up Stocks during Wednesday's Session

North American markets got a lift from the early going Wednesday as merger speculation and deal pondering was afoot. Topping the headlines, reports that TD Ameritrade (AMTD) and E-Trade Financial (ETFC) were talking about merging, and although merger speculation from the online brokerages have seemingly been years in the making the thinking was that its for real this time.

Now TD-Ameri-E-Trade as it should obviously be called, if only for the humor, would instantly become the big player in the online brokerage space leaving Charles Schwab (SCHW) out of luck. Due to synergies involved in merging analysts speculated that the combined $10Billion and $6Billion market cap companies could be worth almost $20Billion together.

Further deal speculation surfaced in the exchanges as Nymex Holdings (NMX) revealed it has been in talks with several players about a buyout, including locally based NYSE Euronext (NYX). Shares of NMX were up 6% on the news. In the casino space MGM Mirage (MGM) shot up 8% as it announced receiving a $5Billion investment from Dubai World in the form of company shares and a stake in Las Vegas projects.

Markets overall finished up over 1% on the day with the Canadian side once again faring slightly better than the neighbours to the south. Canadian markets were fueled by easing of some credit worries with almost all sectors well positive on the day.

Apple signs iPhone deal with European Carriers in UK, France, Germany

Apple Inc. (AAPL) has reportedly signed three separate distribution deals in Europe for the iPhone. The company has signed up three providers in three different countries - France, United Kingdom and Germany. Investors of Apple have known that a European deal was inevitable so what is the next step for company shares?

Apple's own targets for iPhone were 10 million in sales in Calendar 2008, and this included expectations of being in Europe and Asia throughout the year. So do investors sell the news here as the expectation is that the announcement will be made official at the end of next week at a European conference. The analysts following the company echo my own bullish sentiment regarding the company. The deals with T-Mobile in Germany, Orange in France and O2 in the U.K. are simply a starting point for worldwide iPhone expansion. An expansion that seems to be well on track to not only meet but beat sales expectations. Analysts reports recently on the company track U.S. iPhone sales expectations as well ahead of the stated 1 Million sales goal by the end of the current quarter.

The bigger news for shareholders of Apple with these deals is the terms that Apple was able to secure. A full 10% of voice and data revenues from iPhone customers. This is unprecedented in the wireless industry and it just shows how much of a game changing product Apple and the carriers themselves believe that the iPhone is. Since Apple is able to guarantee steady device sales revenue for the carriers it has the clout to negotiate a bigger pie of the usage revenues. It is well known now that the iPhone sells without any subsidy either at carrier stores or Apple's own retail stores and as such the expectation of a price drop on the handset, regardless of contract, for consumers is virtually nil. This revenue sharing plan that Apple gets from the carriers will become increasingly important to a sustained bottom line for the company and as such will provide Apple with predictable, growing and steady cash flow.

It has been speculated that Apple receives somewhere around 7-10 dollars per month per user from AT&T and with this 10% deal in Europe investors should expect the same influx of cash. When Apple meets its sales goal for the end of 2008 the company will be looking at over 10 million iPhone users netting the company in the neighbourhood of $100Million in monthly revenues, which comes with it a nose-bleed type high margin. That's a significant influx of cash that is as of yet difficult to model for analysts given the company changes to subscription accounting. Through this next phase of Apple growth shares of the company can continue to command P/E ratios and forward P/E ratios in the mid-high 30s and high 20s respectively. In the years to come this can effectively turn a $100Billion electronics juggernaut into a Microsoft sized market entity. Apple shares have fallen some $30/share from their 52 week high with the entire market, but have started to regain some losses. In the months ahead technology sizzles and Apple with its continuous schedule of announcements and innovations will likely be one of the first in line to provide market beating returns.

Disclosure: Author is long AAPL