In ESG investing, ESG stands for environmental, social and governance.
ESG investing is investing with a conscience – and today, the investment opportunity is mind-blowingly massive.
Global ESG assets are on track to exceed $53 trillion by 2025.
That means more than one-third of all investment assets under management globally are expected to be ESG-compliant within four years.
There is zero doubt that there is going to be a torrent of money flowing into ESG stocks.
They will receive premium valuations because there will be so much money chasing them.
Their stock prices are going to do well.
But here is the weird thing…
These ESG money flows may also signal a big investment opportunity in anti-ESG stocks – the stocks that ESG funds are not allowed to own.
This Stock Is Dirt Cheap, but the Bond Market Still Loves the Company
Bond investors as a group are generally thought of as the “smart money.” They are less prone to the type of wild speculation we often see in the stock market.
That is because bond investors are more focused on the underlying fundamentals of a company.
Bond investors are lenders. They are turning their money over to a company and need to know whether they are going to get paid back.
Bond investors do the really deep due diligence and figure out how much actual cash flows a business can generate.
Typical stock investors are much more emotional.
And sometimes stock investors aren’t even people – but rather, they are trading algorithms that don’t even know what a company does.
The smart bond market is telling me something fascinating today about Altria Group (NYSE: MO).
The bond market loves this tobacco manufacturer. Yet this is a business that is incompatible with ESG principles if there ever was one.
The Altria Group (CUSIP 02209sau7) September 16, 2026, 2.625% coupon bonds currently offer a minuscule yield to maturity of 1.31%.
I wouldn’t lend my wife money for five years at a rate that low!
The bond market is telling us that Altria Group’s cash flows over the next five years are sound.
The Altria Group (CUSIP 02209sav5) September 16, 2046, 3.875% coupon bonds are even more astounding. The current yield to maturity on this tranche of debt that matures 2 1/2 decades from now is only 3.7%.
Again, that is a clear signal that the bond market sees Altria Group’s long-term cash-generating ability as extremely reliable.
That is interesting because the stock market has a very different view of Altria Group…
At Altria’s current share price, its dividend yield is a whopping 7.35%.
That is more than 5.5 times more income than Altria’s 2026 bonds provide and twice the income that Altria’s 2046 bonds generate.
Not only is Altria Group’s dividend huge, but the stock also trades at a dirt-cheap, single-digit price-to-earnings multiple.
So while the bond market clearly loves the long-term cash-generating ability of Altria Group, the stock market does not.
What Are We Supposed to Make of This?
Somebody is very wrong about Altria Group.
The bond market is bullish about this company’s future cash-generating ability.
The 3.7% yield on those 2046 bonds is a strong vote of confidence from the smart money. I wouldn’t give my money to the U.S. government for 20 years at that rate.
Meanwhile, the stock market is decidedly bearish. That 7.35% dividend yield and the single-digit price-to-earnings ratio tell us that the market is pricing Altria as a company in rapid terminal decline.
The stock market is certainly telling us that Altria Group’s ability to continue to fund its dividend is questionable.
Who is right?
I’m inclined to bet on the bond market.
If I am right, that means the stock market is greatly undervaluing Altria Group’s future cash flows. It would also mean that, with this 7.35% dividend yield, Altria Group is one heck of an income-producing investment opportunity.
The cause of this disconnect between the stock and bond markets is pretty simple to explain. I believe the stock market is no longer capable of properly valuing Altria Group or other companies that similarly aren’t ESG-compliant.
There are now just too many institutional funds that are not allowed to own a business like this.
Plus, many of the institutions that do own Altria Group are likely unloading shares to become more ESG-friendly.
For investors willing to own an anti-ESG stock like Altria, with its 7.35% dividend yield, this could be an opportunity to make some money.