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My very first job in the investment industry was as a cold caller for a broker in Dayton, Ohio back in 1989. There was one particular broker in the office that was older and pretty conservative with his investment ideas for his clients. He didn’t put them in annuities or limited partnerships, and he used mutual funds only rarely. He had a basket of stocks that were his go-to investments, and he built his client portfolios using these dozen stocks.
One of the favorites of this broker was tobacco company Philip Morris, which is now known as Altria Group (NYSE: MO). He called the stock “old Uncle MO” because of its ticker symbol and because he felt it was as reliable as his uncle.
As a result of that period in my life, I still have a habit of calling Altria “old Uncle MO” when I look at it. I happened to look at old Uncle MO last night and I liked what I saw.
The reason Altria came to my attention was due to the fact that the stock appeared on my daily bullish scan. Nothing really caught my eye on the daily chart, but the weekly chart definitely got my attention.
Two things jumped out at me: The stock was sitting on its 52-week moving average and the weekly slow stochastic readings were hitting oversold levels.
As you can see from the blue circles on the chart, there have been two previous instances in the last 3 ½ years where Altria was sitting on its 52-week moving average and the stochastic readings were in oversold territory.
In both previous instances, the stock rallied over the next six months to a year. The first occurrence preceded a 27% rally, and the second occurrence preceded a 33% rally. I look for a similar rally over the next year.
One other thing that I thought about with Altria was how it’s a defensive stock. It is in the consumer staples sector and it should hold up relatively well regardless of what is going on with the overall market. Looking at the monthly chart over the last 20 years, we see that Altria actually gained ground during the bear market of 2000-2002, but lost ground in the bear market of 2007-2009.
Given the current state of the overall market, with the bull market running so long, I am starting to look for stocks that should hold up during any kind of correction. Altria fits that mold despite the loss it took in the last bear market. The stock has a 4% dividend yield and the company has a long history of raising its dividend year after year.
The recent dip in price presents a great buying opportunity in old Uncle MO. While I usually talk about short-term trading opportunities, this is one you want to buy and hold on to for a while.
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