Buy these tobacco stocks for smokin' profits, says Michael Brush:
Tobacco stocks got a bounce earlier this month on news of the resignation of Food & Drug Administration chief Scott Gottlieb.
Then there’s Turning Point Brands TPB, -2.60% a small company that sells vaping devices and liquids, smokeless tobacco products like snuff and chewing tobacco, and Zig-Zag cigarette papers. I suggested Turning Point in my stock newsletter Brush Up on Stocks on Sept. 30. In the year-end market train wreck, it blew through my $34.60 buy limit for conservative buyers.
Price hikes Morningstar analyst Philip Gorham reckons the U.S. is one of the most affordable countries for cigarettes among developed nations. This leaves room for price hikes for many years. “The ability to consistently price above the rate of volume declines should ensure that Altria can continue to increase its revenue, earnings, and dividend,” he says.
Sluggish IQOS demand growth seems odd since among the alternatives to cigarettes this system most resembles the real thing, and many people think it’s healthier. Morningstar’s Gorham discounts the weakness as the normal erratic growth for new consumer products. But he acknowledges there are question marks — chiefly how will regulators treat this product. The FDA is expected to announce its opinion this year.
Tobacco companies are also jumping on the cannabidiol bandwagon. Proponents of CDB, a pot extract that doesn’t make people high, claim it’s a miracle cure for everything from epilepsy and anxiety, to inflammation. There’s little proof for any of this. What’s worse, CBD is made without regulatory oversight. So buyers have no clue what they’re getting. This hasn’t stifled enthusiasm for the folk remedy among consumers.
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