C = Catalyst for a Stock’s Movement
Altria is involved in the manufacture and sale of cigarettes, smokeless products, and wine worldwide. During good times and bad, consumers seem to enjoy their products–so much so that the company continues to see increased profits year after year. The products it markets and sells are a staple in the lives of a large portion of the population.
T = Technicals on the Stock Chart are Strong
Altria’s long term price chart sees it trading near all-time highs. In fact, it just hit these new levels last year but has recently pulled back a few dollars. It has been seeing a beautiful pattern of higher highs and higher lows since its pullback in 2008. The stock may need a little more time to rebuild but look for the stock to continue higher once it has caught its breath.
The use of simple moving averages can help clarify and provide insights into the price trend of a stock. What do the key simple moving averages say about Altria’s price trend? The stock is currently trading around its 50-day, 100-day, and 200-day simple moving averages, which is signaling confusion that leads to range trading.
One way to gain perspective into investor sentiment is through the use of the options market. More specifically, taking a look at the implied volatility and implied volatility skew levels of Altria options may help determine if investors are bullish, neutral, or bearish. The implied volatility of Altria options is at 19 percent today, which coincides with an 83rd percentile over the last 30 trading days and 63rd percentile over the last 90 trading days.What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.
The implied volatility skew of March and April put options is steep while call option skew is flat. Now, what does this mean? As of today, there is a low demand from call buyers or high supply of call sellers while there is high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. Thus, investors are buying a significant amount of call and put options and are leaning neutral to bearish over the next two months, a normal situation during range bound trading.
E = Earnings Are Increasing Quarter-Over-Quarter
Earnings and revenue growth rates are important because stock prices have some dependence on them. The markets have expectations,and it is important to analyze whether these expectations have been met. The last four quarterly earnings growth (Y-O-Y) rates have been: 60.98, -43.86, 185.7, and 6.67 percent while the last four quarterly revenue growth (Y-O-Y) rates have been: 1.84, 2.19, 9.58, and 0.07 percent. Earnings growth looks to have improved into the last quarter while revenue growth looks to have decreased slightly.
More importantly, the investor reaction to these reported rates is key. The next day trading session returns provides insight into the earnings sentiment. The last four next day trading session returns for Altria’s stock have been: -0.05, -0.09, 0.19, and 0.74 percent. It seems as if investors expectations were met and priced-in to the stock prior to earnings.
E = Excellent Relative Performance Versus Peers and Sector
Altria stock has been on a significant run over the last few years but how has it done year-to-date? The stock has returned 11.53 percent year-to-date while its competitors, Reynolds American (NYSE:RAI), Lorillard (NYSE:LO), Philip Morris (NYSE:PM), and sector have returned 2.73, -11.79, 8.73, and 15.16 percent respectively. Altria’s stock has been leading its peers by a good amount but has trailed its sector slightly.
Altria is in an industry that has performed well, and it shows in its stock price. They made new highs just last year and is now trading just a few dollars short of them. This price trend has also been supported by the earnings and revenue numbers the company has reported. Relative to its peers, the stock has led the pack. Look for Altria to OUTPERFORM.
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