Monday, December 25, 2006

Altria is Most Overvalued Dow Stock

Last week we explained that our Dividend Valuation Model was signalling that the Dow Jones Industrial Average was about 10% undervalued. We showed that with GE's recent dividend hike it was nearly 25% undervalued and one the cheapest stock in the Dow.

The obvious question that report raised was -- are there any stocks that are significantly overvalued? There are two stocks that our models rate as overvalued by at least 20%, Hewlett Packard, and Altria, the former Philip Morris. Of the two, Altria's Dividend Valuation Model is most convincing.

The chart below shows that Altria's current price is approximately 20% above its valuation "steps." The model also shows that the two previous times in the last 20 years when MO became overvalued for an extended period of time it experienced a sharp pullback.

We are not calling for a sharp pullback in MO, but we have a lot of confidence in our models and we believe MO is at least entering a period when valuation headwinds are likely to be swirling.

......................Altria Dividend Valuation................