Ashes to Assets
In this edition of the Smart Investor newsletter, we spotlight a legacy “vice” giant reinventing itself into a fast-growth consumer champion. We’re not selling any stocks this week, as heightened market anxiety continues to distort reactions to earnings and business developments. But first, let’s review the latest Smart Portfolio developments.
1
Portfolio News and Updates
❖ Modine Manufacturing (MOD) announced the opening of its new 153,000-square-foot manufacturing facility in Franklin, Wisconsin, marking a significant step toward expanding its data center cooling capacity amid the company’s shift to high-growth technology markets such as AI data centers. The facility is part of Modine’s multi-year $100 million investment plan to scale production capacity across multiple sites, including this facility and others, aimed at driving future revenue growth. MOD management projects that data-center sales could approach $2 billion by fiscal 2028.
1
❖ Alphabet’s (GOOGL) Google unveiled plans to invest $40 billion in three new data centers in Texas through 2027, doubling down on its AI infrastructure buildout and marking the company’s largest investment in any state up to now.
In other notable news, Berkshire Hathaway revealed a new stake in Alphabet, valued at about $4.9 billion. The massive stake makes GOOGL Berkshire’s 10th-largest U.S. stock holding, and marks the financial behemoth’s investment strategy shift toward cloud and AI bets. This significant investment by Warren Buffett’s firm was widely interpreted by investors as a strong vote of confidence in Alphabet’s long-term prospects and has helped its stock buck the downward market trend this week.
Another announcement added to the positive news, with Google releasing a new batch of AI tools designed for travel planning and ticket booking. The company said it plans to add flight and hotel booking capabilities in AI Mode, further expanding its agentic AI reach.
Meanwhile, one of the few remaining GOOGL sceptics, Loop Capital, has changed its stance, upgrading the stock from “Hold” to “Buy” and raising the price target from $260 to $320. The firm said it is no longer concerned about the sustainability of the company’s search revenue growth amid AI advances, as search results remain strong while Gemini usage grows in parallel. At the same time, the position of Google Cloud and the size of the opportunity for its proprietary AI chips is “becoming better appreciated,” according to Loop, which also raised Google Cloud’s growth outlook.
1
❖ At the annual Quantum Developer Conference, IBM (IBM) unveiled fundamental progress on its goal of delivering both quantum advantage by the end of 2026 and fault-tolerant quantum computing by 2029. Quantum advantage means that a quantum computer can solve a useful, real-world problem more efficiently than the best current algorithms running on any classical computer. Meanwhile, fault-tolerant quantum computing is the design and operation of quantum computers that can detect and correct errors in real time, allowing reliable and accurate quantum computations even when the physical qubits are prone to errors and noise.
Targeting these twin achievements, the tech giant introduced IBM Quantum Nighthawk – its most advanced quantum processor, designed to complement high-performing quantum software – expected to be shipped by the end of 2025. The new quantum chip offers 120 qubits and 218 tunable couplers, designed to handle circuits with 30% greater complexity while maintaining low error rates compared to its predecessor, IBM Quantum Heron. Alongside hardware, IBM is upgrading its quantum software platform, Qiskit, enhancing accuracy and reducing computational costs even as qubit counts scale beyond 100. Moreover, IBM introduced IBM Quantum Loon, an experimental chip designed to validate key hardware elements needed for fault-tolerant quantum computation through advanced error correction technologies.
1
❖ General Dynamics (GD) was awarded a $2.28 billion cost-only modification to its existing Navy contract. The modification supports advance procurement and construction for Columbia-class ballistic missile submarines, with work expected to be completed around 2031.
1
❖ Oracle (ORCL) is up more than 33% year to date, but has dropped by about the same percentage from its September record high, which was reached post-earnings release. The sell-off was initially sparked by profit-taking after a strong rally, and continued in force as investors questioned the firm’s massive financing plans to fund its AI ambitions. The tech valuation and spending jitters that have recently resurfaced are adding fuel to the fire.
The main driver behind the increased pressure on ORCL is the company’s massive new debt offering aimed at expanding its AI infrastructure and cloud data centers. The firm is forcefully pivoting into the AI race, committing to spend hundreds of billions of dollars in the next few years on chips and data centers – as part of deals to supply computing capacity to OpenAI and under its ambitious Stargate project. With the market fixated on the massive amounts of billions spent by hyperscalers on AI capex, Oracle’s moves are much more unsettling for many investors. That’s because the company’s move into AI infrastructure came later than other hyperscalers – Amazon, Microsoft, Google, and Meta – prompting what looks like a “fast and furious” all-out bet.
That’s why Oracle has been aggressive in tapping debt markets to rapidly build its capacity, having sold $18 billion of bonds in September and now conducting talks to raise $38 billion more. Morgan Stanley forecasts that Oracle’s borrowing may nearly triple its debt load by 2028, increasing its net adjusted debt from roughly $96 billion today to about $290 billion. While the company’s fundamentals are more than solid and Oracle retains an investment-grade credit rating, investors are pricing in the uncertainty around whether the AI investments will generate sufficient returns fast enough to justify the heavy debt load.
While Oracle Cloud Infrastructure (OCI) revenue growth – and especially the massive RPO expansion, portending future income surge – is already reflecting the fast-growing chunk of hyperscaler capex flowing to Oracle, the business is massively capital-intensive, and margins are expected to remain under pressure in the near term. Still, the AI capex is surging, and the demand for infrastructure is accelerating, far exceeding existing supplies of computing power. This apparent early upcycle supports analysts’ views that Oracle’s infrastructure business is forecast to increase revenues by more than 10x by 2029, with most of Wall Street bullish on its medium- to long-term trajectory, rating ORCL a “Buy” and seeing a potential upside of over 60%. For example, Jeffries reiterated its bullish stance, including a $400 PT – despite acknowledging potential risks from rising capex – projecting a continued growth surge as Oracle benefits from accelerating momentum in its AI and cloud infrastructure businesses. We at Smart Investor tend to side with Jeffries, retaining high conviction in our ORCL holdings – but we will certainly keep an eye on the developments.
1
1
Portfolio Stocks Under Review
❖ We are removing Cisco Systems (CSCO) from our “under review” bracket following its beat-and-raise earnings report.
The fiscal Q1 2026 results provided a seal of validation to Cisco’s self-reinvention – a powerful, even if gradual, shift from legacy networking to a major enterprise AI infrastructure player. FQ1 was stronger than expected, surpassing analyst consensus on both top and bottom lines. Total revenue increased 8% year-over-year, reaching a record of $14.9 billion, and adjusted EPS rose by 10% to $1.0.
The company’s software segment’s sales increased 2% year-over-year. Meanwhile, surging demand for AI infrastructure and campus networking solutions drove a 10% jump in product revenue, with total product orders up 13% year-over-year. The company revealed FQ1 AI infrastructure orders from hyperscalers totaling $1.3 billion, and said it expects full fiscal-year orders in this segment to translate into over $3 billion in revenues. CSCO’s pipeline for enterprise, sovereign, and neocloud AI networking products exceeds $2 billion for the remainder of the year. Cisco returned $3.6 billion to shareholders over the quarter, including $1.6 billion in dividends and $2 billion in buybacks.
Importantly, CSCO’s security business continued to progress. Despite a 2% year-over-year decline in overall security revenue, this was largely due to legacy platforms softening and the transition to cloud subscriptions in Splunk, which caused near-term revenue moderation but is expected to improve long-term revenue quality. Meanwhile, Splunk’s ARR and product RPO grew by double digits.
The management said CSCO is on track for its strongest year yet after a solid start to the fiscal year due to strong AI-driven demand, raising its fiscal-year outlook. The company now guides for revenue of $60.2-61 billion (up from the previous range of $59-60 billion) and EPS of $4.08-4.14 (up from $4-4.06). The fiscal Q2 revenue is seen at $15-15.2 billion and EPS of $1.01-1.03, both well ahead of analyst consensus. Moreover, Cisco highlighted a multi-year, multi-billion-dollar network refresh opportunity, rapid adoption of next-gen campus and enterprise products, and ongoing innovation in AI, security, and edge solutions.
About a dozen Wall Street analysts raised their price targets on CSCO following the results and guidance beat, with an average PT implying an upside of about 12% on top of the year-to-date surge of more than 37%.
1
❖ We are keeping Keysight Technologies (KEYS) under review, as the stock performance still seems to lag the company’s sound fundamentals.
We have added KEYS to the Smart Portfolio on October 1, building our investment case on the company’s pivot to AI infrastructure, 6G research, and quantum computing.
Keysight is the world’s largest provider of electronic design and test solutions, serving as a critical enabler of innovation across communications, aerospace, automotive, AI, and emerging fields like quantum. While commercial deployment of quantum computing remains years away, KEYS’s AI-enabling tech has already become a meaningful contributor, expanding faster than the company overall, as the company’s measurement and validation tools are also deeply embedded in the AI hardware value chain, supporting accelerator, processor, and memory performance in systems designed for training and inference.
At the same time, KEYS is making strides in advancing quantum engineering technologies. At Nvidia’s GTC conference, the AI chip leader announced a collaboration with Keysight aimed at developing hybrid quantum-AI computing through combining Nvidia’s NVQLink architecture and KEYS’ Quantum Control System, which integrates with NVIDIA’s CUDA-Q software platform to support hybrid quantum-classical systems. Moreover, in end-October Keysight revealed the Quantum System Analysis tool – a breakthrough EDA solution enabling quantum engineers to simulate and optimize entire quantum systems at the system level.
Keysight’s leading role in the development of the next-gen quantum-AI computing is one of the key reasons that analysts view the company as one of the main beneficiaries of surging AI-related investments. Hyperscalers are currently spending a record high 60% of their operating cash flow on capex, with data center and AI infrastructure expansion not likely to slow anytime soon. Goldman Sachs has recently named KEYS a top pick for tech capital expenditure and R&D in 2026, boosting the growth outlook. UBS initiated KEYS with a “Buy,” saying that the company is at an inflection point towards growth acceleration, driven by AI infrastructure, synergies from recent acquisitions, and a continued rebound in the core business. These are expected to induce margin expansion and a re-rating of the stock.
However, the stock remains volatile, torn between a favorable outlook and worries over its relatively high valuation. Thus, Citi initiated the stock with a “Buy” and a price target implying an upside of more than 21%, saying that the company is past its cyclical declines and is benefiting from stabilizing trends in wireless and improving trends in defense. On the other hand, Jeffries said that although KEYS is a high-quality business, the current valuation already reflects mid-single-digit organic growth expected in the next couple of quarters, limiting near-term upside. Meanwhile, institutional investors appear unfazed by the price, having increased their holdings from under 85% in Q1 to nearly 89% in Q2 2025, reflecting strong institutional interest in the company.
Keysight has never underperformed EPS consensus, but its latest three quarterly reports – the ones that reflected its return to growth, no less – have been met with muted market reaction. Its next earnings report on November 24 will drive our decision regarding its place in the Smart Portfolio. While a small earnings beat probably wouldn’t suffice, given company-specific multiple worries amid broad-market jitters over tech stocks’ valuations. On the other hand, a set of significantly better-than-expected results may provide a new re-rating benchmark for KEYS, giving its stock a leg up.
1
❖ We are placing AECOM Technology (ACM) under review following a mixed fiscal Q4 2025 and a strongly negative initial market reaction.
AECOM is a global professional services firm, focused on design, engineering, advisory, and program management. It operates with a consulting-led model that provides scale and technical depth across various sectors without the volatility typically associated with contracting. The company plans, designs, engineers, and manages complex projects in sectors including transportation, water, energy, buildings, and digital infrastructure. AECOM is known as a premier infrastructure firm delivering professional services throughout the entire project lifecycle, partnering with public and private sector clients globally.
The company delivered another quarter of solid profitability, with adjusted EPS above expectations and full-year operating income meaningfully higher, supported by a record backlog. However, revenue once again missed consensus, and FY2026 EBITDA guidance landed a touch light, raising near-term questions around top-line momentum.
At the same time, AECOM introduced a major portfolio shift: a strategic review of its Construction Management business, including a potential sale, as it reallocates toward higher-margin AI, Advisory, and design-led segments. The long-term targets released at Investor Day point to a compelling path ahead, but they also raise the execution bar during a period of restructuring and reinvestment.
Given the mixed signals, the post-earnings drop appears driven more by uncertainty than deterioration, as the markets refuse to accept anything less than perfect against the backdrop of broad investor anxiety. We will keep a close eye during the coming weeks and will reassess AECOM’s positioning as the dust settles.
1
1
Portfolio Earnings and Dividend Calendar
❖ The Q3 2025 earnings season is well past its peak but still rolling, with Jacobs Solutions (J) scheduled to report on November 20, and Keysight Technologies (KEYS) expected to post its results on November 24.
❖ The ex-dividend date for Microsoft (MSFT) is November 20, while for RTX (RTX) it is November 21.
w
1
New Buy: Philip Morris (PM)
Philip Morris International, Inc., aka PMI, is a global leader in the consumer-goods space, operating at the intersection of traditional tobacco and smoke-free innovation. While long recognized for its portfolio of combustible brands, the company has deliberately reshaped its identity around a smoke-free future. Its platform now spans globally recognized cigarette brands, premium heated-tobacco products such as IQOS, and a fast-scaling oral-nicotine portfolio through Swedish Match, including ZYN. This blend of global scale in its legacy business and dominant leadership in heated tobacco positions PMI as the central infrastructure provider in the industry’s shift toward reduced-risk products for adult smokers who would otherwise continue smoking.
1
Beyond the Flame
Philip Morris International’s history traces back to Philip Morris’s London shop in 1847, eventually growing into a global consumer-goods force and culminating in its 2008 spin-off from Altria Group, Inc. to become one of the world’s leading international tobacco companies. Yet the foundation of its current strength is not past dominance but a decade-long corporate pivot that reshaped the company’s identity. This transformation accelerated after the company’s bold 2016 commitment to a “smoke-free future” – a clear strategic break from its combustible legacy.
PMI owns the international rights to produce and market the Marlboro brand, along with L&M, Chesterfield, Next, and Philip Morris, which remain widely sold across roughly 170 markets. These brands command a significant share in many of the world’s cigarette markets.
However, over the past five years, PMI’s trajectory has been defined by large-scale investment and targeted acquisitions centered entirely on non-combustible products. By 2025, the company had invested over $14 billion in R&D and manufacturing for its smoke-free portfolio. The introduction and rapid global expansion of IQOS, its flagship heated-tobacco system, positioned PMI as the clear global leader in the Heat-Not-Burn category. IQOS has driven the switch of over 41 million adult users from cigarettes as of mid-2025.
The most transformative steps came through two strategic deals that cemented PMI’s leadership across the reduced-risk spectrum. First, in 2024, PMI reached an agreement with Altria to end their commercial relationship covering IQOS in the U.S., giving PMI full strategic and commercial control of its most important growth engine in the world’s largest smoke-free market beginning April 2024. Second, the $16 billion acquisition of Swedish Match in 2022 brought PMI the runaway category leader ZYN, which continues to accelerate U.S. oral-nicotine growth. Together, IQOS and ZYN established a dual-engine smoke-free platform that is unmatched globally.
PMI also advanced smaller, high-leverage acquisitions, including the 2021 purchase of Fertin Pharma for nicotine-gum technology and Vectura for inhalation and drug-delivery expertise. These assets now sit within the Aspeya unit, which uses PMI’s smoke-free R&D, life sciences capabilities, and manufacturing platforms to develop products in consumer wellness and healthcare.
Taken together, these moves – alongside a broad organizational redesign – reflect a company that is not merely adjusting to industry changes but actively shaping its direction, positioning PMI as a durable, diversified, and future-oriented global consumer business.
1
Smoking Hot Business
Philip Morris International is no longer a traditional tobacco company; it is a global consumer goods operator reshaping the entire nicotine landscape at an industrial scale. The broader market it serves is undergoing a structural shift away from cigarettes, and PMI has built its business around a bifurcated model: managing the profitable decline of its legacy combustible portfolio while aggressively expanding a smoke-free ecosystem that is designed to overtake it.
The Smoke-Free Business (SFB) is the company’s strategic anchor. PMI has invested more than $14 billion since 2008 to build an RRP platform encompassing heated tobacco, oral nicotine, and vapor technologies. These products now account for over 40% of net revenues and are expanding across more than 100 markets, powered by a multi-year clinical, scientific, and regulatory program that rivals pharmaceutical-grade development. This depth of research is a core competitive advantage: PMI is not simply producing alternatives, but generating the regulatory evidence necessary to convert adult smokers at scale. That foundation is becoming increasingly valuable as more countries intensify scrutiny of nicotine categories, putting a premium on companies with robust scientific dossiers and the ability to manage complex regulatory pathways.
IQOS is the centerpiece of this strategy and remains the world’s leading heat-not-burn platform. Its consumables are now among PMI’s largest and fastest-growing revenue sources, driven by double-digit shipment growth and expanding availability across key markets. In Japan and other developed markets, IQOS continues to extend its lead despite rising competition, with management expecting growth to accelerate as newer rivals validate the category and expand consumer awareness.
Alongside IQOS, ZYN has become the dominant force in the U.S. nicotine-pouch category, holding roughly 60% volume share and two-thirds of category value. U.S. momentum re-accelerated sharply in Q3, with Nielsen-tracked offtake rising nearly 40% and shipments up in the high-30% range as PMI returned the brand to full availability and normalized promotional activity following a temporary one-off investment. Combined with FDA authorization of 20 ZYN SKUs in early 2025, PMI now holds a significant regulatory advantage in a category that is rapidly expanding and increasingly competitive.
The U.S. has also become a more strategic frontier for IQOS, with the upcoming ILUMA launch and continued build-out of PMI’s dedicated U.S. commercial organization. Management has flagged the U.S. as a multi-year growth engine, investing heavily to establish a long-term platform that mirrors PMI’s international success.
This expansion is being reinforced by a major organizational re-architecture effective January 2026. PMI will move from four geographic units to three dedicated reporting segments – International Smoke-Free, International Combustibles, and U.S. – a structure built to sharpen execution and accelerate the smoke-free pivot. The company is also formalizing Aspeya, its wellness and healthcare division, integrating capabilities from Fertin Pharma, Vectura, and its broader inhalation and drug-delivery expertise. This step signals optionality beyond nicotine and extends PMI’s long-term innovation runway.
While the smoke-free portfolio defines PMI’s future, the combustible business still finances much of the transition. Cigarette volumes continue to decline structurally, but PMI’s global distribution scale, pricing power, and leadership positions across global markets maintain profitability and generate substantial cash flow. The company continues to offset cigarette volume declines through disciplined pricing, strong premium-brand performance, and geographic diversification that dilutes local volatility. At the same time, PMI is managing familiar industry challenges – illicit trade pressures, regulation, and macro-driven consumer strain – through its scale and mix, demonstrating operational resilience across widely different market environments.
To summarize the business setup, PMI is operating a dual-track model: a declining but highly profitable legacy engine and a fast-scaling smoke-free platform that already represents a substantial portion of revenue. It is the combination of global scale, brand power, regulatory credibility, and financial muscle that positions the company to lead the next phase of the global nicotine market.
1
Smoke on the Ledger
Philip Morris’ third quarter reads like a company running two engines at once – a legacy business in controlled decline and a high-growth platform that now pulls the financial narrative forward. Revenue reached $10.8 billion, up 9.5% year-over-year and roughly in line with expectations, with organic growth of 5.9% – but really closer to 7.3% once Indonesia’s technical accounting effect is removed. Smoke-free momentum continues to reshape the mix: these products delivered more than $3 billion in quarterly gross profit for the first time, rising nearly 15% organically, and pushed PMI’s gross margin to a pandemic-era high of 67.9%.
Adjusted EPS came in at $2.24, up 17% year-over-year and above consensus for the seventh straight quarter. The past seven quarters have produced a pattern: PMI reliably beats on earnings, while revenue beats in six of those seven periods, with Q2’s slight slip tied to shipment timing rather than demand. Adjusted operating income rose 12.4% in dollar terms, lifting margin to 43% – the highest in nearly four years – even after a temporary surge in U.S. commercial spending tied to ZYN’s relaunch. That $100 million investment was a one-off promotion to reestablish full availability in the U.S. market. It sparked debate because some investors initially viewed it as a sign of weakening ZYN demand, but management clarified that the spend was designed to repair price-positioning distortions created during last year’s supply constraints. Ongoing promotions will run higher than in 2023–2024, but this is a new normal tied to category growth, not a margin-structural reset.
Volume trends tell the story beneath the margin strength. Cigarette volumes fell 3.2% year-over-year, consistent with the long-term decline, but heated tobacco shipments jumped 16% and ZYN pouch volumes in the U.S. grew 37% – evidence that smoke-free categories are more than offsetting combustible erosion. Across the first nine months of the year, smoke-free products are growing far ahead of PMI’s midterm targets, and industry share is expanding across all three core brands.
Cash generation remained robust. PMI expects more than $11.5 billion in operating cash flow for the year, a slight upgrade, with free cash flow tracking above last year, even after heavier U.S. investment and a one-off $100 million ZYN promotion. Cost savings remain on schedule toward the company’s $2 billion efficiency target for 2024-2026, helping protect margin expansion despite elevated SG&A.
Guidance was nudged higher, though not as aggressively as some analysts had hoped. PMI now sees full-year adjusted EPS growth of 12-13.5% on a currency-neutral basis, translating to 13.5-15.1% in U.S. dollar terms. Organic net revenue growth remains 6-8%, with management signaling delivery toward the lower half due to inventory timing. This is where the U.S. ZYN dynamic comes in: distributors exited Q3 with unusually high inventories following the promotional surge, and PMI confirmed that 20-30 million cans will be drawn down in Q4 to restore normal stock levels. Organic operating income growth was trimmed to 10-11.5% from 11-12.5%, a modest numerical adjustment that nevertheless prompted a sharper reaction than the size of the revision would imply. Investors had been positioned for a clean upward revision after PMI’s strong smoke-free performance, so a midpoint cut driven mainly by heavier U.S. spending behind ZYN landed below expectations.
Q4 2025 is clearly a transitional quarter rather than a performance reset. PMI expects continued double-digit smoke-free growth and improved alignment between IQOS shipments and in-market sales, with ZYN resetting to a more sustainable promotional cadence after the one-off Q3 spend. Analysts broadly echo this view: expectations center on another EPS beat, stable to slightly higher gross margin, and a clearer picture of ZYN’s normalized run-rate once inventory correction flows through.
Put together, the guidance picture is firmer than the market’s initial reaction suggested. Near-term SG&A will run elevated, and Q4 optics will look softer because of channel normalization, but the underlying momentum remains unchanged. Full-year guidance still implies accelerating mix shift, structurally higher margins, and a financial model increasingly shaped by smoke-free growth as PMI enters 2026.
1
Price Meets Vice
Philip Morris sits in a peculiar corner of the market – a space where addictive goods, regulatory pressure, and brand power collide – and its peer set reflects that mix. Altria offers the clearest U.S. nicotine benchmark, showing how domestic cigarette economics and regulatory cadence shape valuation. British American Tobacco provides the global contrast: a multinational tobacco operator that typically trades at a discount to U.S. peers, yet remains essential for comparing long-term share performance and smoke-free execution. Constellation Brands brings in the premium “vice” parallel, a large-cap alcohol leader whose pricing power, regulatory oversight, and brand-driven cash flow mirror PMI’s setup. And Coca-Cola rounds out the group as a consumer-staples giant built on another form of habitual consumption – sugary beverages – offering a useful anchor for how the market values durable, global brands in regulated or health-scrutinized categories. Together, these companies frame the competitive and valuation landscape that defines where Philip Morris stands today.
PMI’s stock has outpaced all of its peers year-to-date except British American Tobacco, logging a nearly 30% gain. The strong rally has been driven by the company’s record EPS growth and accelerating momentum in its smoke-free product segment, expected to continue driving long-term gains. However, the stock gave up some of its previous gains in recent months, pressured by choppy broad-market sentiment and investor disappointment after a more muted guidance raise than expected. This short-term weakness has taken PMI from a premium valuation back toward fair value, prompting our decision to add it to the Smart Portfolio before it regains its ground.
Philip Morris is still not cheap relative to the Consumer Staples sector median – but it isn’t supposed to be. Its scale, pricing power, profitability, and strong and accelerating growth look foreign in the stable, but thin-margin and slow-moving sector. Compared to its peer group, though, valuations appear moderate, taking into account PMI’s much higher past and expected revenue and EBITDA growth amid peer-average profitability metrics. The stock’s trailing and forward GAAP and non-GAAP P/E, EV/EBITDA, Price/Sales, and Price/Cash Flow are slightly above the peer mean and sit well below those of Coca-Cola. Meanwhile, Philip Morris’s forward PEG ratio of 1.80x is significantly lower than the sector median and all its peers’ metrics, signaling a unique growth setup in the consumer-product space.
Adding value to growth, PMI is a dividend-paying company with a consistent dividend growth track record, having increased its dividend every year since 2008. The most recent dividend increase – 8.9% in September 2025 – drove its yield to roughly 3.61%, well above the sector average. PMI’s dividend focus is well-anchored by its legacy cash-flow generation. The company had been an active buyer of its own stock until 2022, when the Swedish Match acquisition led it to prioritize balance-sheet flexibility and smoke-free investment – signaling that PMI is doubling down on growth while reducing leverage.
PMI enters 2026 with a valuation that finally matches its fundamentals – a business tilting toward higher-margin categories, widening global leadership, and a cash engine strong enough to fund the entire pivot. If smoke-free execution stays on its current trajectory, the stock still has room to rerate higher as the market begins to price PMI for what it is becoming rather than what it used to be.
1
Investing Takeaway
Philip Morris offers a rare blend of structural growth and cash-flow durability at a time when the global nicotine market is undergoing its biggest shift in decades. The company is steadily converting a legacy cash engine into a high-margin, multi-category smoke-free platform with global scale and regulatory credibility that few competitors can match. IQOS and ZYN anchor a portfolio built for long runways, while the combustible business continues to fund the transformation without undermining profitability. PMI pairs this evolving mix with disciplined reinvestment, a predictable dividend profile, and a balance sheet that is steadily improving as smoke-free growth accelerates. For investors seeking a defensive consumer-staples name with a genuine growth trajectory rather than mere stability, PMI stands out as a long-term compounder in transition.
1
1
Smart Investor’s Winners Club
The 30% Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Market volatility has surged, and UBER fell through the threshold. However, the Club has gained CSCO, keeping the membership at 17 stocks: AVGO, GE, ANET, HWM, EME, APH, TSM, ORCL, IBKR, PH, GOOGL, CRWD, VRT, IBM, RTX, CSCO, and BK.
The first contender for the Club’s entry is now UBER with a 26.22% gain since purchase. Will it reenter the ranks of the Winners, or will another stock outrun it to the finish line?
1
1
|
