Thursday's Headlines: Altria Goes Up In Smoke
Here were the biggest movers in the MyWallSt shortlist yesterday:
Moving Up ⬆️
2U (TWOU) +9.5%
Lemonade (LMND) +6.0%
Redfin (RDFN) +4.8%
Netflix (NFLX) +4.7%
Zillow (Z) +4.5%
Moving Down ⬇️
Upstart Holdings (UPST) -5.7%
The Trade Desk (TTD) -3.6%
Nautilus (NLS) -3.5%
Nike (NKE) -3.5%
Core & Main (CNM) -3.0%
Here are the stories that you need to know ahead of market-open today, Thursday, the 23rd of June.
Altria goes up in smoke 🚬
Shares in Altria Group slid more than 9% on Wednesday after it was uncovered that the Food and Drug Administration (FDA) will order Juul Labs Inc. to remove its e-cigarettes from the U.S. market. The order follows a 2020 ban on pre-filled vape pods with fruit, dessert, or mint flavors — which were blamed for the rise in teen vaping.
Altria Group (previously known as Philip Morris Companies) is no stranger to tobacco controversy. It is one of the world’s largest producers and marketers of tobacco, cigarettes, and related products. It is the parent company of Marlboro, John Middleton, and the U.S. Smokeless Tobacco Company.
Over the years, Altria has been eager to distance itself from the health concerns surrounding tobacco and identifies itself as a “tobacco harm reduction company”. It’s unclear how you can reduce the risks of tobacco while selling it, but anyway.
Altria picked up a 35% stake of Juul in 2018 for $12.8 billion, valuing the company at about $35 billion. However, since then, things have not been going well. Juul became the poster child for youth vaping which officials have called an epidemic. Federal data has shown that 28% of high school students in 2020 vaped in the last 30 days, compared to just 12% in 2017.
Since acquiring its stake in Juul and the subsequent restrictions on vaping, Altria has been forced to write down the value of the investment to $1.6 billion — a pretty hefty discount.
Now, with an all-out ban on the books and vaping representing the next generation of tobacco usage, it’s possible Altria will need to rethink its long-term strategy.
Revlon Surges To Meme Stock Status ⬆️
Last week, we reported that cosmetics brand Revlon had filed for bankruptcy following a tough couple of years for the business. A new twist to the story has occurred, however, as retail investors have sent the stock skyrocketing by close to 600% from the lows witnessed early last week prior to its bankruptcy announcement.
Short interest had been high in Revlon at just under 38%, so retail investors — sensing the opportunity for another short squeeze — piled into the stock. This has pushed Revlon well and truly into meme stock territory, as investors continue their search for the next GameStop or AMC.
Some of you may be wondering why — or even how — people would invest in a company that has just declared itself bankrupt. Revlon actually filed for Chapter 11 bankruptcy, which allows it to restructure, alleviate some of its leverage, and continue to operate as a business.
As Revlon moves into previously uncharted territory as a meme stock, it must be noted that meme stocks are massively volatile. Large stock movements often occur without any correlation to the actual health of the company itself. The pattern of trading here largely follows patterns we’ve seen before, with car rental company Hertz experiencing similar interest following its own bankruptcy announcement in May 2020. Shares of Revlon still remain down over 30% this year-to-date despite this recent surge.
Buffett Bets Big on Oil 🛢
With tech stocks still getting crushed, it seems that Warren Buffett is going back to some old-world reliables as his Berkshire Hathaway corporation buys another 9.6 million shares of Occidental Petroleum Corp.
The investments, which were made in the past week and cost some $530 million, boosts Berkshire Hathaway’s stake in the 100-year-old oil company to 16.3%. Like many other oil and energy companies, Occidental has been having a strong year, with its stock price up about 80% since January thanks to rising oil prices. At the start of this month, Occidental shares had actually more than doubled year-to-date to hit highs not seen since 2018 — no mean feat considering that we’re now in a bear market.
Led by the inimitable Warren Buffett and his right-hand man, Charlie Munger, Berkshire Hathaway is considered by many as the gold-standard when it comes to long-term, buy-and-hold investments.
Founded in 1965, the conglomerate wholly owns well-known companies like GEICO, Lubrizol, and Dairy Queen, while it also has significant holdings in the likes of Apple, American Express, Coca-Cola, Wells Fargo, IBM, Kraft Heinz, and Mars.
In recent years, many have accused Buffett and Berkshire of falling behind the trend of high-growth tech and SaaS companies. Indeed, Buffett is on record as explaining that he missed some of the best investments of the century like Amazon and Microsoft because they are outside of his circle of competence.
However, with a compounded annual return of 20.1% from 1965 through 2021— easily beating the 10.5% of the S&P 500 in the same period — it’s fair to say that, even at 91 years of age, people still pay attention to Buffett’s moves.