Cigarette Stocks: The Myth of the Dying Tobacco Industry
Despite the passage of smoking laws, anti-smoking campaigns and an increased overall awareness of the danger of smoking, the tobacco industry is still making strong profits.
Stanford's Robert Proctor recently released his 750 study Golden Holocaust: Origins of the Cigarette Catastrophe and the Case for Abolition. Publishing the book personally cost Proctor $50,000 in legal fees to defend himself against the industry, which subpoenaed his email and unpublished manuscript (via Stanford Report).
So, what was the tobacco industry trying so hard to hide?
Besides some horrid health-related facts ("If everyone stopped smoking today, there would still be millions of deaths a year for decades to come."), Proctors' book accounts for how tobacco makers have repeatedly lied to Congress and the public.
Proctor says six trillion cigarettes are smoked every year. "That's "enough to make a continuous chain from Earth to the sun and back, with enough left over for a couple of round trips to Mars."
But isn't smoking on the decline? Not so fast. According to Proctor, "we don't count the people who don't count. It's not the educated or the rich who smoke anymore, it's the poor." In addition, the rising popularity of hookahs are "just as addictive, and just as deadly."
Another myth: "The tobacco industry has turned over a new leaf." False, says Proctor. Cigarettes are made more deadly today than they were 60 years ago, and tobacco companies still target children, just not in ways so obvious as cartoon Joe Camel.
Most people begin smoking at the age of 12 or 13, or even younger in some parts of the world, says Proctor. "And how many people know that cigarettes contain radioactive isotopes, or cyanide, or free-basing agents like ammonia, added to juice up the potency of nicotine?"
Perhaps most interesting is Proctor's note that global tobacco use would be declining were it not for China, where 40% of the world's cigarettes are made and smoked.
But that, he believes, will change soon once China's government realizes the fringe costs -- paying for diseases caused by smoking and loss of productivity -- outweigh the benefits of tobacco taxes.
Despite the rush of negativity toward the tobacco industry the cigarette companies trading on the U.S. stock exchanges have posted positive performance this year -- all above 10%.
We list the seven cigarette companies below. Do you think these names have the momentum to continue on an upward trend?
(Click here to access free, interactive tools to analyze these ideas.)
1. British American Tobacco (NYS: BTI) : Engages in the manufacture, distribution, and sale of tobacco products. Market cap of $91.76B. Relatively low correlation to the market (beta = 0.6), which may be appealing to risk averse investors. The stock has gained 28.79% over the last year.
2. Star Scientific (NAS: CIGX) : Engages in the development, implementation, and licensing of tobacco curing technology that prevents the formation of carcinogenic toxins present in tobacco and tobacco smoke, primarily the tobacco-specific nitrosamines (TSNA). Market cap of $322.79M. The stock is a short squeeze candidate, with a short float at 18.65% (equivalent to 17.1 days of average volume). The stock is currently stuck in a downtrend, trading -7.08% below its SMA20, -12.06% below its SMA50, and -30.9% below its SMA200. The stock has performed poorly over the last month, losing 17.01%.
3. Lorillard (NYS: LO) : Engages in the manufacture and sale of cigarettes in the United States. Market cap of $14.80B. Relatively low correlation to the market (beta = 0.39), which may be appealing to risk averse investors. Offers a good dividend, and appears to have good liquidity to back it up--dividend yield at 4.74%, current ratio at 1.92, and quick ratio at 1.7. The stock has gained 39.64% over the last year.
4. Altria Group (NYS: MO) : Engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. Market cap of $59.86B. Relatively low correlation to the market (beta = 0.43), which may be appealing to risk averse investors. The stock has gained 23.82% over the last year.
5. Philip Morris International (NYS: PM) : Engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. Market cap of $131.87B. 0The stock has gained 32.63% over the last year.
6. Reynolds American (NYS: RAI) : Through its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States. Market cap of $23.94B. Relatively low correlation to the market (beta = 0.59), which may be appealing to risk averse investors. The stock has gained 34.88% over the last year.
7. Vector Group (NYS: VGR) : Engages in the manufacture and sale of cigarettes in the United States. Market cap of $1.41B. Relatively low correlation to the market (beta = 0.42), which may be appealing to risk averse investors. The stock is a short squeeze candidate, with a short float at 7.63% (equivalent to 10.24 days of average volume). The stock has gained 10.65% over the last year.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Data sourced from Finviz.
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