Tobacco Stocks: The New "Cigar Butts"?

Industry Overview (BATS LN, IMB LN, MO US, PM US)

Introduction

In this article we summarize our views on Tobacco stocks for Substack readers. Our involvement with the sector dates back more than a decade, and we have been publishing our research publicly since 2019:

Early Samples of Our Public Research

Source: Seeking Alpha.

Most Tobacco stocks have fallen significantly in the past 5 years, and both Altria and British American Tobacco (“BAT”) have Free Cash Flow (“FCF”) Yields exceeding 10% and Dividend Yields exceeding 8%. Investors rightly fear that Reduced Risk Products (“RRPs”) now offer a realistic alternative to smokers and will cannibalize cigarette volumes significantly. Japan Tobacco’s domestic business shows how profits can be impacted, and subtler datapoints can also be found in other Tobacco players’ financial results. RRPs can be a positive contributor to Tobacco earnings, and Philip Morris (“PM”) has been the clear winner. Over time the nicotine market should stay strong, but there can be significant shifts in market share …