Tobacco stocks have been performing well as we enter 2017. Sin stocks like tobacco may be a tough buy for some investors, but the industry has done well and last year was not an exception either. Below is an overview of selected stocks from the sector and a few notes on their prospects as we settle into the New Year.
Altria Group (MO) – Marlboro, Copenhagen, Skoal and Black & Mild – Altria is undoubtedly one of the kings of the industry with half of retail sales (the company does sell wine as well). Rumors have Altria and Phillip Morris forming a merger. It might make sense since MO has been hurt by a stronger dollar. Shipments have slowed but the company continues to make new products that do favorably. Last quarter, the company saw earnings rise and sales slide. The company’s subsidiary Nu Mark launched Ten e-cigarettes and they did well with consumers.
Reynolds American (RAI) – Camel, Pall Mall, Grizzly, Kodiak and American Spirit – RAI recently merged with British American Tobacco (BTI) for $49.4 billion – the deal will close in the 3rd quarter of this year creating the largest publicly traded tobacco company. “The new, combined company would have a large share of the market in the United States, as well as a major presence in Africa, Asia, the Middle East and South America,” British American Tobacco said. There could be some issues here with currencies, but many analysts predict this could be a dividend machine for shareholders.
Universal Corporation (UVV) – headquartered in Richmond, Virginia, UV supplies tobacco leaves and represents an ability to play the tobacco stock without worrying about brands. The company’s market capitalization is short of $1.5 billion, but many see the company as fairly priced right now, so many are waiting for the price to fall. However, there is no denying that selling tobacco leaves has been a cash machine.
Phillip Morris (PM) – Marlboro, Virginia Slims, Parliament – a subsidiary of Altria has also been hurt by a strong dollar, but matched an impressive free cash flow from 2015 of $6.905 billion. The company expects an 18 cent share hit because of currency based on its 2017 EPS guidance. In addition, the company has debt facing higher rates this year.
Schweltzer-Mauduit International, Inc. (SWM) – the company makes specialty paper and resin products and operates in 90 countries. At the end of 2016, the company acquired Conwed Plastics, a resin-based netting manufacturer, for $295 million. The company sees opportunity in the company because of Trump’s infrastructure plan and how netting is used often in construction. This flows with the company business model as it diversifies itself as protection from lowered smoking sales.
22nd Century Group, Inc. (XXII) – is a biotech company that possesses 200 patents with the ability to decrease or increase the nicotine in tobacco plants. The company can also do the same for Cannabis. The company makes Spectrum cigarettes with modified levels of nicotine for scientific study. Spectrum is government sponsored. The company has grown revenue 10x over since 2014 and the company is owed $7 million from British American Tobacco. The payments will be divided up but should increase revenue by substantial margins. Not to mention, in a world where cigarettes are becoming taboo and people are urged to quit, XXII is the only company that can reduce nicotine naturally in cigarettes to very low levels.
Alliance One International, Inc. (AOI) – is an independent leaf tobacco merchant that purchases, processes and packs tobacco. The company’s activities are seasonal, which causes revenue levels to fluctuate. The company has shown steady growth and increasing disposable income to attack emerging markets, where tobacco sales are highest.