Altria (MO) stock continues to underperform the broader market in 2019. On August 17, the CDC (Centers for Disease Control and Prevention) said that it is investigating certain lung diseases linked to the use of e-cigarettes.
According to the CDC, “94 possible cases of severe lung illness associated with vaping were reported in 14 states from June 28, 2019, to August 15, 2019.” Altria owns a 35% interest in JUUL Labs, a leading e-vapor products manufacturer. Notably, Altria’s e-vapor segment volumes grew roughly 40% year-over-year in the first half of 2019—JUUL drove nearly all of this growth.
Health risks associated with e-vapor products use impacts Altria’s growth in this segment, which could increase the company’s regulatory risks. As a result, the company’s long-term volume growth could also be affected.
Altria stock is trading well below its 50-day and 200-day moving averages. As the above graph shows, it bottomed deeper every time it was on a downward trend. It fell to nearly $60 on August 17 before rebounding. It fell below $55 in May 2018 and below $45 in February 2019.
Altria’s 14-day RSI (relative strength index) is currently about 40. The stock is considered to be in the oversold zone if its RSI falls below 30, which may indicate an imminent reversal in the stock’s direction. So, the stock may dip a bit more from its current levels before rebounding.
Altria stock has fallen roughly 7% in 2019 against a 16% rise in the S&P 500 Index. In comparison, Philip Morris International (PM) is up 24% year-to-date. Philip Morris posted strong Q2 2019 results. Additionally, the company raised its sales and EPS guidance for 2019.
Short interest in Altria
The short interest in Altria is approximately 13.3 million shares. The short interest in Altria as a percentage of its float is 0.71%. Based on its average 30-day trading volume, it would take a little less than two days to cover all the open short positions in the stock. The stock’s short interest as a percentage of its float was on a downward trend for most of the last year.
However, as the above graph shows, the stock didn’t rise when its short interest fell, as is usually the case. This indicates that the stock continued to fall, even though short sellers weren’t expecting it to fall. Altria looks attractively valued and is offering an attractive yield.
Institutional investors in Altria
Some top investors sold Altria in the second quarter of 2019. According to the latest filings, Fidelity Management & Research Company sold 17.5 million Altria shares in Q2. Capital Research Global Investors and BlackRock Institutional Trust Company sold 5.2 million and 4.2 million Altria shares, respectively, in Q2. Further, Independent Franchise Partners sold 4.3 million Altria shares, and J.P. Morgan Asset Management sold 3.4 million shares.
As the above table shows, the Vanguard Group—the largest investor in Altria—bought 0.5 million Altria shares in Q2. The Vanguard Group holds 7.9% of Altria’s outstanding shares. Capital World Investors bought 6.7 million shares, raising its ownership stake to 4%.
Overall, the top ten investors collectively sold 18.7 million shares. This indicates their bearish outlook on the stock. The above institutional activity relates to the quarter ended June 30. As such, the selling activity by these top institutional investors could have contributed to the stock’s recent fall.
Analysts expect a 24% upside
Sixteen Reuters-surveyed analysts cover Altria stock. Nine analysts rate it as a “buy” or a “strong buy.” Five analysts rate it as a “hold,” and two analysts rate it as a “sell.” The analysts’ mean price target for Altria is $57.70, which implies an upside potential of around 24% from Altria’s current price.
In comparison, three of the 12 Reuters-surveyed analysts rate Cronos Group (CRON) as a “buy.” Altria owns about 45% interest in Cronos. Seven analysts rate it as a “hold” and two rate it as a “sell.”