Johnson & Johnson (JNJ), Philip Morris International Inc. (PM): Stocks You Should Buy (if Only They Were Cheaper)

Speaking of dividend yields that are nowhere near where they were a few years ago, there may be no better example than Philip Morris International Inc. (NYSE:PM). The stock began trading publicly in March 2008 after being spun-off from its former parent Altria Group Inc (NYSE:MO). Soon after, the stock actually declined along with the broader market, and traded around $45 as recently as June 2010. At that time, the stock yielded 5.2%.

Less than three years later, and despite consistent dividend increases, Philip Morris International Inc. (NYSE:PM) yields only 3.5%. Investors along the way have been handsomely rewarded with huge capital gains, but current investors are paying a much less appealing price. The company’s net revenues inched up less than one percent in 2012, and the stock appears fairly valued at almost 18 times trailing earnings. Tobacco is a fantastic business model and Philip Morris International Inc. (NYSE:PM) has intriguing growth potential, but it must be acknowledged that the tobacco industry faces a heightened level of risk, and as a result you shouldn’t be complacent in paying a premium to the broader market’s valuation.

The Foolish bottom line

One of my favorite Warren Buffett quotes is that it’s far better to buy a wonderful company trading at a fair price than a fair company trading at a wonderful price. While there’s certainly a ring of truth in that statement, most investors would probably also agree that the price you pay for a stock matters. Invest in an overvalued stock trading at exorbitant multiples, and you’re likely to earn sub-par returns no matter the quality of the underlying company.

These stocks are all well-run businesses that should be considered blue-chip stalwarts in their respective industries. At the same time, you can’t turn a blind eye to valuation. These stocks have each had huge runs that appear to be getting a little ahead of their growth potential going forward. Recent operating performance has left a little to be desired, and new investors just aren’t getting compelling valuation opportunities with these stocks.

The article Stocks You Should Buy (if Only They Were Cheaper) originally appeared on Fool.com and is written by  Robert Ciura.

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