Selecting stocks in today's bear market is challenging due to the dominance of systemic risk. However, Philip Morris International Inc. (PM, Financial) possesses properties that accommodate high-conviction investing. As a result, this consumer staple asset has plenty of substance.
Earnings review and dividend analysis
The tobacco company delivered stunning results in its second financial quarter, beating its earnings target by 23 cents per share. Philip Morris' organic revenue rose by 6.2% as its shipments proliferated by 1%. Additionally, the company added a great deal of residual value as its earnings per share grew by 5.6%.
The smoke-free segment's 30.5% first-half revenue growth also stood out. It is without a doubt that the tobacco industry is fully matured; however, the addition of new concepts such as smoke-free products could reinvigorate the company's broad-based growth.
Philip Morris goes ex-dividend on Sept. 27. The company has decided to bolster its dividend payout by 1.6%, resulting in a magnificent forward yield of 5.4%. Moreover, with $12.54 billion worth of cash from operations, its dividend policy will likely remain intact throughout the bear market, providing investors with a helpful hedge during uncertain times.
Why consumer staples are a good conviction play
It is no secret the global economy is faced with numerous challenges. The softening in global gross domestic product growth, resilient inflation and a pending energy crisis have coalesced into an uncertain landscape for investors. Therefore, a bet on consumer staple stocks such as Philip Morris might be a good move given its defensive characteristics.
Philip Morris' stock holds a beta coefficient of a mere 0.44 times, implying the stock is 1.56 times less sensitive to market variance than the S&P 500 Index.
Of course, with lower risk comes lower reward. However, a lower beta stock can outperform the market if timed correctly. Based on its sector exposure and beta coefficient alone, Philip Morris could beat the market in today's risk-off climate.
High-quality attributes
Market segmentation theory classifies stocks into factors. I am sure most investors are familiar with growth, value and momentum stocks. However, stock classification stretches beyond those realms. High-quality stocks is an official stock market segment, consisting of companies with high profitability, robust return metrics, considerable market share and solid balance sheets.
Based on the criteria set for this segment, Philip Morris ticks all the boxes. High-quality assets tend to outperform in a bear market as they do not exhibit severe volatility. Therefore, we could see Philip Morris outperform the market as a high-quality stock.
Concluding thoughts
Investing in Philip Morris could be a good strategy if you are looking to retain market share. The asset provides counter-cyclical attributes with its low beta and high-quality DNA. Furthermore, the company recently surged past its earnings estimate, indicating that all is rosy on an operational level.
