Stanley Druckenmiller is one of the greatest investors of all time. As manager of Duquesne Capital Management for nearly three decades, from 1981 to 2010, he generated an average annual return of 30% and never had a losing year.
Druckenmiller also worked closely with George Soros and helped ‘break the Bank of England’ with a huge short bet on the pound in 1992.
Today, Druckenmiller is retired as a hedge fund manager, but he still manages his own money through the Duquesne Family Office, and the billionaire’s moves are worth following. Druckenmiller recognized the growth potential of Nvidia in artificial intelligence (AI), who aggressively moved into the stock in the fourth quarter of 2022 after ChatGPT was released, but recently acknowledged that he sold it too early and dumped everything earlier this year.
However, Druckenmiller made another smart purchase earlier this year, buying 889,355 shares Philip Morris International (NYSE: PM) and call options that gave him the right to buy an additional 963,000 shares of the tobacco stock.
Druckenmiller opened a position in the stock in the second quarter, and while we don’t know exactly when he bought the stock, we do know that he has had a big lead on dividend stocks since then. Philip Morris is up 30% since the end of the second quarter, an impressive performance for a high-yield dividend stock, and shares just rallied on the back of its third-quarter earnings report.
Let’s take a look at those numbers and where the company stands today before discussing whether it makes sense to follow Druckenmiller in the stock.
Although smoking is on the decline in much of the world, Philip Morris has adapted to that reality better than its two closest stock market peers. Altria And British-American Tobacco.
About 40% of its sales now come from next-generation products such as its Iqos devices, which heat real tobacco without burning it, and Zyn, the popular oral nicotine pouches it acquired in its $16 billion acquisition of Swedish Match in 2022. in growth in both categories, adding new factories to expand Zyn production, and rolling out Iqos in the US
That strength was reflected in the company’s third-quarter earnings report, when Philip Morris beat analyst expectations and shares rose 10.5% on Wednesday.
The tobacco company reported revenues of $9.91 billion, up 11.6% on an organic basis (i.e. excluding the impact of foreign exchange rates, divestitures and acquisitions), and ahead of estimates of $9.69 billion. Organic sales from its smokeless business increased 16.8% to $3.8 billion, and its combustible fuels business delivered 8.6% organic sales growth thanks to rising prices and a 1.3% increase in cigarette volumes to 163.2 billion.
The oral smokeless business, mainly consisting of Zyn, continued to shine with an increase of 22.2% to 4.4 billion units.
That growth helped the company expand its margins, with organic operating income rising 13.8% to $3.7 billion, and adjusted earnings per share (EPS) rising 14.4% to $1.91.
Finally, the company also raised its full-year guidance, calling for adjusted earnings per share of $6.45 to $6.51, up from the previous range of $6.33 to $6.45 and compared to the consensus of $6.41. On a currency-neutral basis, it expects earnings per share of $6.85 to $6.91, up 14% to 15% from 2023.
Druckenmiller hasn’t explained why he bought the international tobacco retailer, but the recent results should provide some insights.
Philip Morris is performing flawlessly, achieving double-digit growth in a market that many believe is inevitably in decline. While peers like Altria and British American Tobacco trade on single-digit price-to-earnings ratios, Philip Morris has earned a premium with a price-to-earnings ratio of 20, based on this year’s forecast.
Additionally, it offers a dividend yield of 4.5% and just increased its dividend by 3.8% to $1.35 per quarter. Given the company’s underlying growth, the company should have no problem increasing its dividend in the coming years.
With earnings growing in the mid-teens and plenty of white space for Zyn and Iqos, tobacco stocks remain a smart buy.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco Plc and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
Billionaire Stanley Druckenmiller has bet big on this high-yield dividend stock, and it’s up 41% this year. Is it too late to buy? was originally published by The Motley Fool
