“Philip Morris International remains a buy, despite these difficult markets,” says Tom Slee in GordonPape’s Internet Wealth Builder. Here he reviews the global tobacco firm

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“Spun off from the Altria Group earlier this year, Philip Morris International is off to a flying start.

“The company posted strong second-quarter earnings. After a special charge for its Rothmans acquisition, earnings came in at 81c a share, up from 69c a share the year before.

“The company had been reporting as a clearly defined division of Altria so it’s possible to make comparisons and plot progress.

“Gross revenues rose 17.6% to $15.6 billion with double-digit growth in all business segments, helped to some extent by currency benefits. Sales were particularly strong in Egypt, Russia, and Argentina.

“At the same time, the company is engaged in an extensive cost reduction program. It’s a positive picture and PM rewarded investors with a 17% dividend increase from $1.84 to $2.16 a year.

“This is what I had been hoping for. Management is willing to share the wealth with investors and this could become one of the few defensive income stocks with growth potential, as long as you don’t mind investing in a cigarette manufacturer.

“The company successfully purchased Rothmans Inc. for C$2.08 billion and has announced plans to acquire a stable of brands from Britain’s Imperial Tobacco.

“The Rothman deal will not materially affect this year’s results but should contribute in 2009. Canada’s tobacco market is flat to declining but Rothmans has impressive operating margins.

“Looking ahead, PM is well positioned off-shore to avoid most of the continuing tobacco litigation but will face increasing excise taxes as foreign countries start tapping this source of revenue.

“The company’s big advantage is that it will be able to tailor products for countries with potentially high cigarette consumption, such as China and India.

“Earnings of about $3.35 a share are expected this year, a 20% improvement over $2.79 in 2007, followed by $3.65 or more next year. We rate the stock a buy.”