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What’s Making Philip Morris Int’l (PM) Move Up & Down?

21 July 2010 No Comment

If you follow Philip Morris Int’l (PM) like I do, you’ll notice that the stock is now back about $50 per share after being in the low $40’s fairly recently.  The stock has dipped down into the mid $40 range several times and has frequently bounced back up to $50 (and higher).  So is this just normal market activity or is something serving as the catalyst for these movements?

The catalyst is of course the Euro.  As the Euro has been in the news much this year with the European sovereign debt issues, you’ve probably heard something about it.  The reality is that after hitting some pretty low lows a few months ago, the Euro has bounced nicely.  While the general trend in recent years has been dollar down (often means Euro up), stocks up, the trend is more specific for a stock like Philip Morris.  The reason is because for companies like Philip Morris, currency fluctuations where the dollar becomes stronger is a headwind to earnings.  This is because Philip Morris derives all of its revenues from overseas.

You can extend this principle to a great deal of your favorite blue chip, multinational companies, but Philip Morris is one of the few that doesn’t get any revenue from inside the U.S. – This is because Philip Morris USA is a part of Altria Group, Inc. (MO).

Take a look at the below charts to see a similar correlation between the Euro and Philip Morris.



Now, with the European debt crisis far from over, just simply “smoothed over” for a few months, I believe we can definitely expect the crisis to resurface in a matter of months.  During such a renewal of fears, the Euro should get slammed again.  We can expect weakness in stocks like Philip Morris again, and in my opinion, it will offer a buying opportunity.

Philip Morris Int’l (PM) is a great stock to own for the long term, but I believe now is not the best time to buy due to recent Euro strength.  Wait until you see weakness in the Euro and ultimately in the share price of PM.  To see how I’ve been trading Philip Morris back and forth as the price fluctuates, click here.

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