Altria stock (NYSE: MO) has rallied 21% in the last three months and is currently trading close to $51 per share. Despite belonging to a defensive sector (tobacco), the stock has been able to register handsome gains due to upward revision in analysts’ expectations of the company’s earnings for Q1 2021 and full year 2021. Also, the stock has been beaten down in 2020 despite a sharp recovery in the market. This was mainly because of a whopping 88% write down of Altria’s investment in vaping company JUUL Labs, due to lingering public health concerns over the safety of vaping and legal challenges from the Federal Trade Commission. But the vaping market is still expected to grow at a healthy double-digit rate in the coming years. Additionally, after a few quarters of writing down its investment value, Altria has recorded an unrealized gain of $100 million from its stake in Q4 2020. This appears to be a sign of a turnaround which has enthused the markets, thus leading to the stock soaring more than 20% in the last three months. But will Altria’s stock continue its upward trajectory over the coming weeks, or is a correction in the stock more likely?
According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last ten years, returns for MO stock average close to -1.3% in the next one-month (21 trading days) period after experiencing a 21% rise over the previous three-month (63 trading days) period. Notably, though, the stock is likely to underperform the S&P500 over the three months, with an expected return which would be 3.2% lower compared to the S&P500.
But how would these numbers change if you are interested in holding MO stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test MO stock chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!
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MACHINE LEARNING ENGINE – try it yourself:
IF MO stock moved by -5% over 5 trading days, THEN over the next 21 trading days, MO stock moves an average of less than 1 percent, which implies a return which is 1.6 percent lower than that of the S&P500.
More importantly, there is 52% probability of a positive return over the next 21 trading days and 40% probability of a positive excess return after a -5% change over 5 trading days.
Some Fun Scenarios, FAQs & Making Sense of MO Stock Movements:
Question 1: Is the average return for Altria Group, Inc stock higher after a drop?
Consider two situations,
Case 1: Altria Group, Inc stock drops by -5% or more in a week
Case 2: Altria Group, Inc stock rises by 5% or more in a week
Is the average return for Altria Group, Inc stock higher over the subsequent month after Case 1 or Case 2?
MO stock fares better after Case 1, with an average return of 0.7% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 0.2% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how Altria Group, Inc stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
If you buy and hold Altria Group, Inc stock, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For MO stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:
Question 3: What about the average return after a rise if you wait for a while?
The average return after a rise is generally lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks.
MO’s returns over the next N days after a 5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:
It’s pretty powerful to test the trend for yourself for Altria Group, Inc stock by changing the inputs in the charts above.
While Altria stock may have moved, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Coca-Cola vs Merck shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.