This Stock Has All the Characteristics of a Benjamin Graham Investment

Marlboro is the eighth most valuable brand in the world and a cornerstone of Philip Morris’ business. Marlboro sales account for 32% of all Philip Morris’ sales, and due to its heritage the brand usually commands a premium over all other cigarettes.

I know that in my local shop, a pack of Marlboro-branded cigarettes can command a 30% premium to competitors. This high-margin product has historically been a very lucrative business for Philip Morris, but now it seems that Marlboro’s high price is only exasperating the falling sales hitting the industry as a whole; not a good sales pitch for prospective investors.

Making waves
Elsewhere, smaller peer Lorillard is making waves on a national scale. Lorillard’s cigarette sales are still declining, but at a slower rate than the rest of the industry. Lorillard’s total wholesale cigarette shipments within the United States fell 1.7% during the second quarter, beating the industry’s average decline of 6.1%.

In addition, the company’s Newport brand actually gained market share and now accounts for 12.6% of the US cigarette market, up from 12% at the end of last year. However, while Lorillard’s profit grows and the company’s sales are better than average, the firm could be about to lose its livelihood.

Some 90% of Lorillard’s sales are menthol cigarettes, which the Food and Drug Administration has recently decided to consider regulating. More than 40% of youth smokers are reportedly drawn into the habit through menthol cigarettes. Regulation on menthol cigarettes could potentially destroy the majority of Lorillard’s sales, and this would be catastrophic for the company. I don’t have time to talk about this issue now, but you can read more here.

Foolish summary
All in all, Universal meets all of the value criteria laid out by Benjamin Graham and the company looks to be struggling to keep up with supply, which is always a good trait to look for in a prospective investment.

The article This Stock Has All the Characteristics of a Benjamin Graham Investment originally appeared on Fool.com and is written by Rupert Hargreaves.

Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool owns shares of Philip Morris International.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.