Can These Stocks Bounce Higher?

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However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.               

There are just eight stocks listed under "tobacco" in the CAPS' screener, five of which carry well-respected four- and five-star ratings. Those accolades mean our 180,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about these:

Company

CAPS Rating Today (out of 5)

Recent Price

52-Week Price Change

Estimated 5-Year Growth Rate

Altria Group (NAS: MO) ****$27.6212%8%
Lorillard (NYS: LO) ****$108.3126%10%
Reynolds American (NYS: RAI) ****$38.7220%6%

Source: Motley Fool CAPS.

International and financial worries are again gripping the market, but with the S&P 500 still up 4% over the past 12 months, it might be surprising to learn the CAPS tobacco stocks have done much better, rising more than 14% in that same time span. So let's take a closer look at why investors think some of these other companies won't be jumping from the frying pan into the fire now that the markets are roiled again.

Smoke 'em if you got 'em
Imagine buying a stick of butter and being greeted with a picture of a morbidly obese cyanotic patient (that's when you turn blue from not breathing). Or perhaps a picture of a human liver damaged by cirrhosis as you reach for a beer, or pus-filled tooth abscesses as you go to bake sugar cookies with your kids.

That's essentially what an increasingly activist FDA was seeking to have Altria, Reynolds American, and Vector Group (NYS: VGR) contend with by having them post graphic images of the effects of cigarettes on their packaging. But a bit of sanity was restored to the anti-smoking debate by a judge who ruled that the warning-label regulations amounted to advocacy and struck them down.

Hysteria still grips those who want to stamp out smoking altogether, which is why many investors prefer to look overseas at Philip Morris International (NYS: PM) , since it has a far less regulatory burden to carry, or Star Scientific (NAS: CIGX) , which is promoting its low-carcinogen cigarettes.

Altria's recent earnings report indicated that it probably won't be a high-growth candidate anytime soon, though it will likely remain a prodigious dividend producing stock for many years to come. Cigarette sales fell 9% in the third quarter, with growth in its discount brands not being able to make up the difference, as they comprise just a small percentage of the total. Altria's flagship brand Marlboro fell the most.

Almost 9,000 CAPS members have weighed in on Altria, however, and 96% believe it will still light up the stock charts. Even Reynolds American, which makes the Camel and Pall Mall brands, commands loyalty from 93% of the CAPS members rating it. It and Lorillard got a reprieve earlier this year, when the FDA decided not to go ahead with its ban on menthol cigarettes, which would have devastated the respective brands of Kool (which is marketed here in the U.S. for British American Tobacco (NYS: BTI) ) and Newport.

Highly rated CAPS All-Star kkconway believes Lorillard became a stronger company after the menthol-cigarette battle: "Buying on the dip. LO is still rebounding from FDA smear attack on menthol as worse than Blue Asbestos, or Mercury, or Cesium 137; everyone knows cigarettes are harmful, but the FDA's effort to kill off tobacco companies one at a time seems to have only embarrassed them."

CAPS member divinezone finds Reynolds American to be a similarly tough competitor today because of having survived the many battles waged against it: "With some international exposure in smoker-infested Europe, brand names like Camel and Winston (and a slew of others), and having penetrated very well into the growing smokeless tobacco business, Reynolds is poised to very well against the market in the years to come."

Add Altria, Lorillard, and Reynolds American to your watchlist to see whether any or all of them rack up additional wins in the courts or marketplace.

The ball's in your court
There are many factors that go into whether a stock is a buy or sell, so it pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Head over to CAPS today and share your thoughts with other investor analysts on whether you think these stocks are ready to bound higher.

At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Altria Group and Philip Morris International.Motley Fool newsletter serviceshave recommended buying shares of Philip Morris International and creating a bear put ladder position in Lorillard. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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