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A Sale, and a New Position

I'll take some proceeds from a tobacco sale and begin a new energy play.
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I am going to sell 500 shares of Philip Morris International (PM) today after this Alert reaches all of you. I have been selling shares of PM because I prefer my other tobacco play: Altria (MO) . Altria makes up 5.2% of my portfolio, and I will continue to make this a bigger holding because I believe the company has very solid fundamentals, and its 5.5% yield and 28% interest in SABMiller will provide upside to the shares as the company monetizes this holding. After the sale, Philip Morris International will be 1.8% of my portfolio, and I will look to sell my remaining stake on strength.

I will take some of the proceeds and start a new position in Devon Energy (DVN) . I will start with 200 shares. As you know, I am a big believer in energy, and this large- cap E&P company is a perfect addition to the fund; it will complement the smaller energy names I own. The stock is trading at a discount to the large-cap E&P group and yet has significant exposure to on- and offshore drilling, which I believe is underappreciated by the investment community.

Onshore, the company has exposure to the Barnett Shale (where it recently increased production to 2.0 billion cubic feet equivalent (bcfe) a day from 1.6 bcfe/day) and the Haynesville region. It also should see significant cash flow improvements from its oil sands projects -- Polvo oil field in Brazil and Jackfish oil sands in Canada. Finally, it has upside to its presence in East Texas, beyond Haynesville.

Offshore, Devon has several projects under way that are underappreciated by the market. Specifically, it has six key deepwater exploration wells in the Gulf of Mexico and Brazil that if successful could be a positive catalyst for the shares.

The stock is cheap, trading at 4.5 times 2009 EV/adjusted cash flow versus the group at 5.4 times, and it should grow at 12% for the next three years. The big question on the stock is what management will do with its abundant free cash flow. I believe it will continue to buy back stock, reduce debt and make small strategic acquisitions in targeted geographic regions.

After my 200-share purchase, Devon will represent 0.6% in the fund, and I will look for weakness to add more in my portfolio.

Regards,

Jim Cramer

DISCLOSURE: At the time of publication, Cramer was long PM and MO.

Send email to james.cramer@thestreet.com.