• European Aeronautic, Defence & Space Co. NV (PINK: EADSY), parent company of Airbus SAS, announced yesterday (Tuesday) that it would shift production operations to non-European Union countries such as Tunisia in an effort to cut costs, Bloomberg News reported. “We’re planning to produce basic parts in Tunisia, while research and production of more sophisticated parts and composites would be in Europe,” EADS spokeswoman Gaelle Pellerin said yesterday, confirming comments made by Chief Executive Officer Louis Gallois.

• McDonald’s Corp. (MCD) reported yesterday (Tuesday) that same-store sales increased 8.5% in the month of August as cash-strapped consumers took advantage of the fast food chain’s value menus. “McDonald’s does well in bad economies because people trade down,” John Kornitzer, who oversees $5 billion at Kornitzer Capital Management, told Bloomberg News.

• Reynolds American Inc. (RAI), parent of R.J. Reynolds Tobacco Co., announced yesterday (Tuesday) that it plans to reduce 10% of its staff as part of a restructuring program to realign its brands. The bulk of the cuts will come from the second-largest U.S. tobacco company’s Winston-Salem, North Carolina headquarters, The Associated Press reported.

• The U.S. Justice Department has hired Stanley Litvack, the department’s antitrust chief during the Carter Administration, to consult on a probe of an advertising deal between Google Inc. (GOOG) and Yahoo! Inc. (YHOO). “We have been informed that the Justice Department, as they sometimes do, is seeking advice from an outside consultant, but that we should read nothing into that fact,” Yahoo said in a statement, Reuters reported.

• Google Inc. (GOOG) and two other partners, cable television magnate John Malone and HSBC Holdings PLC (HBC), have announced plans to bring internet access to 3 billion people in Africa and other emerging markets around the world with the launch of at least 16 satellites. So far, each partner of the “O3b” (Other 3 billion) venture has contributed $20 million into the project. The satellites should be operational by 2010, Reuters reported.

• The National Association of Realtors said yesterday (Tuesday) that its seasonally adjusted index of pending U.S. home sales fell 3.2% to a reading of 86.5 in July from an upwardly revised June reading of 89.4. Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed.

• Staffing services company Manpower Inc. (MAN) said yesterday (Tuesday) that its seasonally adjusted net employment outlook fell for the fourth consecutive quarter, reaching a level of 9 – down from 12 last quarter and 18 a year ago. The index measures the difference between employers who plan to add jobs and those who expect to cut them.

• The federal government will run a near-record deficit of $407 billion this year Congressional Budget Office said yesterday (Tuesday). The deficit will probably reach a record $438 billion next year and could go substantially higher after the government’s seizure of Fannie Mae (FNM) and Freddie Mac (FRE).

Source: Global Investing Roundups Wednesday, September 10th, 2008

“The combination of Altria and UST creates the premier tobacco company in the United States with leading brands in cigarettes, smokeless tobacco and machine-made large cigars,” Michael E. Szymanczyk, Altria’s chairman and chief executive, said yesterday (Monday) in a statement.

It’s a smart move for Altria, which has had little success with its own Marlboro-branded smokeless tobacco products. Smokeless tobacco accounts for $3.7 billion in sales annually. It is the fastest growing segment of the tobacco industry.

UST manufactures the two most popular brands of smokeless tobacco for adult users. According to data from the U.S. Center for Disease Control, Skoal has a 28% market share and Copenhagen has a 22% share. Together, they make up half of the U.S. market.

Meanwhile, demand for cigarettes has been on the decline in the United States, dropping 3.5% this year. Higher state taxes have boosted the price of cigarettes and are taking a toll on demand.

“Altria is buying two tremendous brands in Skoal and Copenhagen, which it can drop quite profitably into its own distribution network,” Thomas Russo, who manages more than $3 billion at Gardner Russo & Gardner, told Bloomberg News.

Altria predicts the consolidation will generate an estimated $250 million in annual savings by 2011.

This deal mirrors a similar purchase by Altria’s chief rival, Reynolds American Inc. (RAI), which purchased the second-largest maker of smokeless tobacco, Conwood Sales Co. LLC for $3.5 billion in 2006.

Altria’s purchase of UST could put pressure on Reynolds to make a bid for Lorillard Inc. (LO), another major American tobacco company, The New York Times reported.

Investors “are sniffing out the next deal in tobacco,” Matthew Kaufler of Clover Capital Management in Rochester, New York told Bloomberg after rumors of Altria’s interest in UST were reported late last week. “I would expect Lorillard to be next.”

Source: Altria Group’s $11.4 Billion Purchase of UST Could Spark More Tobacco Takeovers

• Sales of existing homes rose in July, climbing 3.1% to a seasonally adjusted annual rate of 5 million units. Sales were expected to rise by only 1.6%, according to economists surveyed by Thomson/IFR, The Associated Press reported. Prices were down significantly from a year ago, as the median price for a home sold in July dropped to $212,000, down by 7.1% from 2007.

• U.S. investment bank Morgan Stanley (MS) said yesterday (Monday) its Saudi unit signed the kingdom’s first swap agreement, a vehicle that allows foreigners to buy into listed stocks through intermediaries, Reuters reported. “Interest from international investors … is very high, and we expect to see a lot more interest in these swap transactions from investors around the world,” Craig Niven, a managing director at Morgan Stanley, said in a statement.

• Former Treasury Secretary Robert Rubin yesterday (Monday) joined Citigroup Inc. (C) as the company’s “senior counselor.” Rubin will give up the chairmanship of the executive committee, which is being dissolved, but will remain on the board. Rubin served as an economic adviser to President Bill Clinton in 1993 and 1994 and was Treasury secretary from 1995 to 1999.

• Shares of Ford Motor Co. (F) touched their lowest price in more than 22 years yesterday (Monday). The company closed at $4.41 a share down six cents, or 1.34%, after earlier falling as low as $4.35 in afternoon trading.

• Crude for October delivery increased 52 cents to close at $115.11 a barrel on the New York Mercantile Exchange after a volatile day of trading, MarketWatch reported. The October oil futures contracts traded between $113.68 and $116.06 on concerns that a Caribbean storm could affect supplies. The National Hurricane Center said yesterday (Monday) that a tropical depression in the Caribbean has strengthened into Tropical Storm Gustav.

• Advanced Micro Devices Inc. (AMD) yesterday (Monday) announced it sold its digital-television chip business to Broadcom Corp. (BRCM) for $193 million. Broadcom hopes to return the loss-generating unit to profitability and expand its presence in the digital TV market, The Financial Times reported.

• A federal appeals court breathed new life into Star Scientific Inc.’s (STSI) patent lawsuit against R.J. Reynolds Tobacco Co., a unit of Reynolds American Inc. (RAI). The U.S. Court of Appeals for the Federal Circuit, based in Washington, D.C., ruled yesterday (Monday) that a federal trial judge in Maryland was wrong in deciding that Star Scientific’s patents were unenforceable, DowJones reported.

• Gold sank yesterday (Monday) in a quiet trading day as the dollar’s rise led to profit taking by investors. “I think gold is finding its base here. It’s mostly technical support holding prices above $820. Any dips below $820 are seen as a buying opportunity,” Carlos Sanchez, precious metals analyst at the CPM Group in New York, told Reuters.

Source: Global Investing Roundups Tuesday, August 26th, 2008

It’s a blue-chip company. But it’s not a bank. Or a car manufacturer. Or Mircorsoft. Or Google.

It’s cigarette company Philip Morris.

Despite litigation and all the negative publicity, Ian Davis in the Growth Stock Wire thinks an investment in cigarettes is an excellent recession play – they do have a 15% annualized growth rate after all…

 Back in the day, cigarette smoking was a respectable business.

In the 19th century, Philip Morris (PM) was a luxury cigarette company and had one tiny, boutique shop on London’s Bond Street.

In 1901, by royal warrant, Philip Morris & Co. became the royal tobacconist to King Edward VII… and with success came growth. Just one year later, the company expanded its business to the United States.

In 1938, the company went public… and investors have been reaping the rewards ever since.

Between 1957 and 2007, Philip Morris was the single highest-returning stock in the United States. A $1,000 investment in Philip Morris in 1957 would be worth about $5.8 million today.

Although Altria’s (MO) returns are the best in the business, other tobacco companies have performed almost as well. Even today, amid declining smoking rates in the U.S., tobacco companies continue to outperform other equities.

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Take a look at the performance of the Datastream Tobacco index since 1973. As you can see, the index has maintained an amazingly consistent 15% annualized growth rate for most of its history.

And more importantly right now, downturns in the tobacco sector do not seem to correspond with market downturns.

Tobacco Is Alive and Well in the U.S.

I’m not saying tobacco companies can’t correct… In 1999, the tobacco index fell by a precipitous 60%. But the stocks were back at new highs a year later…

The fall came after the index was selling for a relatively high 23 times earnings. The companies had settled a number of lawsuits in 1998, and investors were optimistic. After an adverse court ruling in Florida, the index fell down to a P/E of 6.1.

The constant risk of litigation is why this sector is usually so cheap, with a median P/E of 13. But right now, it’s relatively pricey…Although well below all-time highs, the tobacco index is selling for 15 times earnings (18% above its median). Investors are probably bidding these stocks up, cashing in on their reputation for being a safe haven in a tough market.

With these valuations, I wouldn’t hop on tobacco right now for a short-term trade. But as you can see, the sector has always been a good long-term hold.

Good investing,

Ian Davis

P.S. In 1985, Philip Morris changed its name to Altria Group. Then earlier this year, Altria spun off Phillip Morris International to focus on the U.S. market.

Right now, Altria is the most expensive cigarette by price to earnings. Historically, Reynolds American (RAI) and UST have held this honor. Apparently, investors liked the spinoff and have bid up Altria’s stock price accordingly.

Reynolds American is currently the cheapest tobacco company in the Datastream index. It is trading at a P/E of 10.2, about 29% below its median.