Until about mid-2017 or so, Altria (NYSE:MO) stock was a fairly solid investment. But then the shares came under pressure, leading to a grueling bear move. During this period, the Altria stock price went from $77 to $45.

Since then, the company has continued to face strong headwinds. In the U.S. market, there has been a steady decline in the number of smokers. And there appears to be no end to that trend in sight.

Then there was the company’s$12.8 billion investment in vaping products maker Juul.

So far, the timing of the deal has been pretty awful.

The vaping industry is under a great deal of regulatory scrutiny because of multiple deaths that may have been caused by vaping.

All of these uncertainties derailed a potential merger between Altria and Philip Morris International (NYSE:PM).

So given all this, it’s reasonable that investors would be shy about taking a position in Altria stock.

In the near-term, MO stock may have few positive catalysts. But for investors who are willing to be patient, Altria stock may be a good value play.

Here are a few reasons why that’s the case:

Investing in the Long-Term
The investment in Juul was not MO’s only questionable deal. Altria also invested $1.8 billion in Cronos Group (NASDAQ:CRON), in exchange for a 45% stake in CRON. (Altria also has an option to take an additional 10% stake).

But I would not characterize these deals as blunders. It’s really just too soon to make that call. When it comes to strategic investments, the focus is on the long-term. And I think these investments will work out well over the long-term.

Let’s first take a look at Juul. The founders of the company, Adam Bowen and James Monsees, leveraged their backgrounds in product design to transform the e-cigarette market. From the start, the company’s growth was torrid – and Juul has become the dominant player in the industry.

No doubt, Altria brings lots of value to Juul, in terms of marketing and distribution. The combination should enable Juul to deliver non-cyclical growth.

The liability issues are serious. But the investigations are still in the early phases, and there is no evidence that Juul’s products are responsible for medical issues. If the company is is cleared of any liability, Altria stock price should rebound in a big way.

As for the CRON investment, it looks like a solid play on the fast-growing cannabis market. With companies facing difficulties across the industry, Cronos is in a good position for consolidation. CRON also is a leader of the Canadian market and has a growing medical business. And it’s been positioning itself to benefit from the CBD opportunity.

The Market Dynamics
One of the key advantages of Altria stock is MO’s moat. It would prove extremely expensive and time consuming for any startup to move into the tobacco industry. Because of this, Altria is in a position to keep raising prices. That, in turn, has enabled MO to offset the negative impact of falling sales volumes. It also helps that the company has an assortment of premium brands like Marboro.

Also protecting Altria stock is the fact that marketing tobacco products is illegal . That makes it very difficult for competitors to disrupt the industry.

The Valuation of Altria Stock
The valuation of MO stock is at rock-bottom levels. Note that the forward price-earnings ratio of Altria stock is only about ten. During the past five years, the forward multiple has usually been about 16. So, if things get back on track, MO stock can climb meaningfully.

And finally, Altria provides a lucrative dividend yield of 7.37%. More importantly, the company continues to generate strong cash flows that will allow it to maintain this payout.

— Tom Taulli

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Source: Investor Place