There is no ignoring it. President Trump’s tariffs and commerce threats are roiling the markets, sending the S&P 500 right into a correction for the primary time since 2022. The tariffs introduced right this moment have been simply the newest transfer fueling investor uncertainty.
In the meantime, shopper sentiment is quickly falling, and companies are more and more fearful because the manufacturing sector simply fell right into a contraction, in response to the March ISM survey. A lot of the economic system is in danger from tariffs and the affect of a weakening economic system. For instance, the AI shares that had pushed the bull market of 2023 and 2024 have pulled again considerably, despite the fact that their direct publicity to tariffs is restricted.
Nevertheless, there are some secure shares accessible to journey out the commerce conflict disruption, and among the best out there may be Philip Morris Worldwide (PM -1.16%), which is insulated from the tariff uncertainty in quite a lot of methods and likewise has robust observe document of development. Not solely is the refill 69% during the last yr as of April 2, but it surely’s additionally a dependable dividend payer with a dividend yield of three.4% at present. Together with its historical past earlier than it break up from Altria in 2008, the inventory is a Dividend King, having raised its dividend payout yearly for greater than 50 years. Listed below are just a few explanation why Philip Morris is nicely positioned to keep away from the tariff noise.
1. U.S. publicity is restricted
Philip Morris’ divorce from Altria in 2008 set clear boundaries for the 2 firms. Altria would function within the U.S., and Philip Morris would promote the identical set of cigarette manufacturers, led by Marlboro, in worldwide markets.
Immediately, that divide stays, although Philip Morris has gained modest publicity to the U.S. by way of its acquisition of ZYN dad or mum Swedish Match, and it not too long ago started promoting IQOS, a heat-not-burn tobacco product, within the U.S. The corporate does practically all of its enterprise exterior of the U.S., and it is well-insulated from American import tariffs or perhaps a U.S.-driven commerce conflict.
The corporate sources tobacco from world wide, together with the U.S., although there’s minimal export threat there. In its most up-to-date earnings name, CEO Jacek Olczak addressed issues about tariffs, saying that its provide chain is about up regionally so it manufactures practically the entire ZYN oral nicotine pouches it sells within the U.S. domestically.
Given the construction of the corporate’s provide chain, the reliance on a world commodity like tobacco, and its deal with worldwide markets, Philip Morris appears nicely protected against U.S. tariffs.
2. It is a recession-proof product
Even when Philip Morris have been uncovered to tariffs, tobacco is a shopper staple, that means that it is a product that customers purchase whatever the financial surroundings. Not solely that, however tobacco has confirmed its worth inelasticity, repeatedly.
Regardless of vital excise taxes in some elements of the U.S., for instance, demand for the product has been resilient. Philip Morris Worldwide additionally has a historical past of elevating costs on its merchandise, and it is acquired little push-back. Its pricing energy is evidenced by the large working margins that it, Altria, and others within the tobacco business get pleasure from.
Even when a commerce conflict sparks a world recession, Philip Morris needs to be a lot better-positioned than most firms to climate it and proceed to develop.
Picture supply: Getty Photos.
3. Latest outcomes have been excellent
In the event you assume tobacco is a declining business, it is best to check out Philip Morris’ current outcomes.
Total income in 2024 rose 7.7% to $37.9 billion, whereas income from its smoke-free enterprise, which incorporates ZYN and IQOS, rose 14.2% to $14.7 billion.
Whereas Philip Morris continues to be rising cigarette volumes, the corporate has efficiently diversified from conventional tobacco to next-gen merchandise like ZYN and IQOS, which now generate 40% of income and 42% of its gross revenue, as of the fourth quarter.
The inventory’s current efficiency is proof of its robust outcomes because the 69% leap during the last yr reveals the enterprise is clearly executing. Even with out the concerns about tariffs, Philip Morris appears well-positioned for long-term development primarily based on the pivot to newer merchandise.
Is Philip Morris a purchase?
Placing the volatility round tariffs apart, Philip Morris appears like a powerful purchase candidate, contemplating its strong top-line development, large margins, and newer development merchandise. For traders seeking to diversify away from the U.S. or to neutralize tariff threat, Philip Morris looks like a great alternative.
The inventory rose 2% in March even because the S&P 500 fell 5%, and Philip Morris is up 30% year-to-date, a standout winner in a down yr.
For a recession-proof inventory that gives development, revenue, and safety from tariffs, it is onerous to seek out a more sensible choice than Philip Morris Worldwide.
