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Five Reasons Why Tobacco Stocks Are Still Smoking


Now could be a good time to take a long, deep drag.


In the latter part of June, President Obama inked a bill strictly regulating the marketing of tobacco products.

But is that the industry's death knell? I doubt it. In fact, I still think tobacco companies -- and by extension, tobacco stocks -- have the potential to really smoke over time.

Hear me out:

Growing up, my mother smoked. Not like a chimney, but enough to have a well-developed bicep from lighting up. As a kid, I couldn't stand taking in a lungful of somebody else's spent air. As an adult, not much has changed.

At the same time, I did come to appreciate the tobacco industry and its ability to thrive over the years, despite the best efforts of both well-heeled activists and many of our elected representatives. (Please hold the emails: I'm not defending the industry, merely commenting on its longevity.)

I realize that individuals are becoming better educated about the adverse effects of smoking. But people have been lighting up forever: High-school kids will continue to sneak a smoke in the bathroom, and coworkers will continue to huddle in the cold outside their office buildings for years to come.

Among the companies in the space, I have a great deal of respect for Altria Group (MO):

1. Think about all of the big-name brands this company sports. It takes my breath away.

2. Talk about bargain bin -- the stock can be had for a song. It trades at about 9.6 times this year's estimate.

3. The management team can rightfully scream "scoreboard" at the top of their raspy voices as the company has beaten expectations 3 times in the last 4 quarters.

4. I don't find smoking to be sexy, but its dividend sure is. The forward yield is almost 8%.

5. It's trading near its 12-month low, so now could be a good time to take a drag.

Altria isn't the only cigarette company I'm hip on. Reynolds American (RAI) and Philip Morris International (PM) deserve some loving, too.

And keep an eye peeled: On July 22, Altria is anticipating the release of its second-quarter numbers. The Street is at $0.47, but I think it's got a solid shot of coming in north of that.

Hey, have a great day. Only 4 more days till the weekend!

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No positions in stocks mentioned.

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