|Suppose you could buy an investment that paid a dividend of about 7 ½%, had a price to earnings ratio of only about 7.7, represented part-ownership in one of the most lucrative businesses in the world, with return on shareholder equity of over 46%, one of the most recognized franchises for its brands and products*, an above average safety rating from "Value Line," and a "Value Line" 3-5 year projected total return of about 120%? (*This is the company of Kraft Foods, Maxwell House Coffee, Jell-O, Kool-Aid, Oscar Meyer, Miracle Whip, Velveeta, Post Cereals, and Miller Brewing, etc.)
Suppose we added that substantial shares in this business are held by several of the mutual-fund industry’s biggest names: "Oakmark’s Sanborn, Jim Barrow (Vanguard Windsor II), Shelby Davis (Davis New York Venture), David Dreman (Kemper Dreman High Return), and George Vanderheiden (Fidelity Advisor Growth Opportunities)" (Source: "Worth," 12/99-1/00, "One Stock," pp.49-54.)?
Then suppose we sweetened the suggestion by stating that few businesses give more in charity? Except for one little thing, this company would probably win four-star citizenship awards from social-responsibility investors. Its programs benefit minorities, the hungry, the elderly, persons with HIV positive, etc.
Suppose we pointed out that this company has hardly if ever been as low in price to value as it is now, with its shares on sale at the bargain price of less than 80% of its annual revenues? Would you be interested in buying this company’s shares
But this company, the big MO, Philip Morris (recent price $25 ½) does have a teeny-weeny problem. As Oakmark’s Robert Sanborn said: "The simple fact is that people hate Philip Morris (same as earlier source)." Current and proposed legislation and suits against this company, even if all new ones were thrown out or settled out of court, are almost certain to cost the company hundreds of billions of dollars. And, of course, the company’s main product, nicotine tobacco, is now accepted to be, through its many deleterious health effects, an addictive killer of tens of millions worldwide. Further, within a few months it could begin to be regulated by the FDA as a drug.