The Daily Dow
Monday, June 23, 1997
by Robert Sheard

LEXINGTON, KY. (June 23, 1997) -- With Friday's announced settlement between a consortium of state Attorneys General and the tobacco industry, the local question of what to do about PHILIP MORRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> -- the stock residing in the favored second-cheapest position of the Beating the Dow rankings -- is on the minds of Dow investors, both veteran and rookie alike.

Here's what I think, and take it for what it's worth -- one man's view.

In the past, Beating the Dow has seen a number of events where a Dow company ran afoul of popular opinion and the courts. The two classic examples are EXXON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %> after the crash of the Valdez and UNION CARBIDE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UK)") else Response.Write("(NYSE: UK)") end if %> after the devastating explosion in Bhopal, India.

After each of these incidents, investors bailed out of the stocks, fearing endless losses from litigation. The result was a plunge in the stock prices sufficient to push the stocks' dividend yields into the highest among the Dow 30, and thus, into the Beating the Dow group of "stocks to buy."

As we know in retrospect, investors who bought Exxon and Union Carbide, when no one else wanted them, did quite well. As a rule, these giant Dow stocks are all but unsinkable. An event like the Valdez crash or the Bhopal explosion, and perhaps now with the tobacco settlement, frequently creates -- strictly from an investment standpoint -- a tremendous bargain.

I don't know if Philip Morris will follow in the paths of these other classic cases, but evaluating the situation strictly as an investment (I'm not here to talk about personal ethical questions regarding investing; I leave those entirely to you), Philip Morris is the kind of company that can get past this event and continue to flourish. It's cash-strong, has strong growth (overseas if not here in the States), pays a relatively large dividend, and is a market leader. It's hard to bet against such a company.

Another issue to consider is investor psychology. By now, most investors who want to jump ship have probably already done so. I suspect that in the near-term, you're likely to see some unpredictable movement in the stock price, but the bulk of the short-term selling is likely to have occurred Friday and today. Despite the news and today's overall Dow sell-off, the stock is still only 11% off its 52-week high.

Barring some strange new development in Congress (and keep in mind that three of four representatives received tobacco money in the last election campaign -- don't expect too much self-righteous indignation from the majority of Congress), the news of the settlement has taken much of the uncertainty out of the equation for the tobacco industry. Knowing what's in store is a whole lot easier for investors to cope with than fearing the worst.

If you want some market research on the cheap, poll your smoking friends and colleagues. How many of them are planning to quit because of this settlement? Just my thoughts on Philip Morris as a stock, mind you. I purposely haven't discussed my feelings about smoking. That's a separate and somewhat private issue on which my opinion probably isn't of much interest to you. (That said, I'm not perfect and occasionally enjoy the opportunity to jump on a soapbox and harangue whomever will listen. Who knows? Maybe tomorrow's column?) Fool on!

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. ________________________________

Stock  Change   Last
--------------------
T    -1        36.25
GM   -   3/8   55.25
CHV  -1  3/4   72.75
MMM  -2  1/8   100.00

                 Day   Month    Year
        FOOL-4   -2.05%   1.55%   1.99%
        DJIA     -2.47%   3.73%  17.93%
        S&P 500  -2.23%   3.58%  18.61%
        NASDAQ   -0.88%   2.43%  11.10%

    Rec'd   #  Security     In At       Now    Change
   1/2/97  120 3M            83.00    100.00    20.48%
   1/2/97  153 Chevron       65.00     72.75    11.92%
   1/2/97  179 Gen. Motor    55.75     55.25    -0.90%
   1/2/97  479 AT&T          41.75     36.25   -13.17%


    Rec'd   #  Security     In At     Value    Change
   1/2/97  120 3M          9960.00  12000.00  $2040.00
   1/2/97  153 Chevron     9945.00  11130.75  $1185.75
   1/2/97  179 Gen. Motor  9979.25   9889.75   -$89.50
   1/2/97  479 AT&T       19998.25  17363.75 -$2634.50


                             CASH    $609.53
                            TOTAL  $50993.78