Tobacco is traditionally a sleepy sector known for high dividend yields and a recession-proof business model, but one tobacco stock has delivered a surprising breakout this year. Philip Morris International (NYSE: PM) is up 38% so far in 2024 as it has successfully pivoted to next-generation smoke-free products, including Iqos heat-not-burn sticks and Zyn nicotine pouches.
Billionaire investors now are taking notice, as a number of them bought the booming tobacco stock in the third quarter. Among them were:
- Stanley Druckenmiller's Duquesne Family Office bought 245,280 shares of Philip Morris in the quarter, bringing its grand total to 1.13 million. Druckenmiller is known for running the Duquesne Capital Management hedge fund for nearly three decades with an average annual return of 30% and no losing years. These days, he runs a family office, but investors still closely track his moves.
- Ken Griffin's Citadel Advisors bought 1.79 million shares of Philip Morris in the quarter, bringing its grand total to 2.9 million shares, or $352.4 million worth of the stock. Citadel is one of the largest hedge funds in the world, and according to some measurements, it's the most successful hedge fund in history, having achieved around $74 billion in gains since it started operations in 1990.
- Rajiv Jain's GQG Partners was the biggest hedge fund purchaser of Philip Morris in the quarter, buying 6.4 million shares, bringing its haul to nearly 42.7 million shares of the stock, worth almost $5.2 billion.
Image source: Getty Images.
Why billionaires are piling into Philip Morris
Philip Morris offers a rare combination of income, growth, and a recession-proof business model. Not only has the stock outperformed this year, but that combination of qualities makes it an easy sell for hedge fund managers, and the company is at the cutting-edge of the evolution in its industry.
Philip Morris currently offers a dividend yield of 4.2%, which is good for an average stock, but below its peers in the tobacco industry.
However, what really stood out is its solid growth on the top and bottom lines, thanks to new products. Revenue in the third quarter jumped 11.6% on an organic basis, which excludes currency exchange, to $9.9 billion. Product shipments were up across the board, with 8.9% growth in heated tobacco units and oral smoke-free products -- primarily Zyn. Even cigarette shipments rose 1.3%.
Those results drove strong growth on the bottom line as operating income rose 13.8% to $3.7 billion and adjusted earnings per share rose 14.4% to $1.91.
Management said that the smoke-free business contributed 38% of revenue and 40% of gross profit, and its share continues to improve. The company also raised its quarterly dividend by 4% to $1.35 per share.
Is Philip Morris a buy?
Philip Morris's acquisition of Swedish Match in 2022 gave it ownership of Zyn, and it also acquired the rights to sell Iqos products in the U.S. from Altria. Both developments seem bullish for the stock, as next-gen products are a rare growth market in tobacco. The company's success with those products have given it in an edge over peers like Altria and British American Tobacco.
Philip Morris also has another advantage over Altria and British American Tobacco. The company is focused almost entirely on international markets where smoking rates are higher and the decline in cigarettes is slower. At a time when U.S. trade policy is also uncertain amid talk of tariffs, Philip Morris' focus on the international market will help insulate the company from any vicissitudes in the U.S. economy regarding tariffs.
For now, Philip Morris appears to be well-positioned to capture further growth in the tobacco sector and escape any malaise over trade policy in the U.S. Nicotine remains a massive category, and Philip Morris is finding new ways to deliver it to customers.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
