2 Tobacco Stocks to Buy Before It Gets Too Late
With increased health awareness, tobacco usage has relatively declined over the years as smokers continue to quit. However, the U.S. remains a leading tobacco producer globally. Moreover, in 2022, the value of the global tobacco market amounted to around $912 billion.
The lockdown-induced stress has also led to increased consumption among many, and the industry is benefiting from this new habit. Companies spend substantially on marketing campaigns that have produced considerable results and help in remaining competitive.
Moreover, amid rising awareness regarding the ill effects of its consumption, new nicotine products, also referred to as Next-generation Products (NGP), are being introduced that are significantly less harmful than conventional products. The global tobacco market is expected to expand at a CAGR of 2.4% from 2022 to 2030.
In addition, tobacco leaves are relevant for several medicinal purposes. Also, organic tobacco usage has gained substantial popularity over the past years. According to Report Ocean, the global tobacco market is projected to grow at a CAGR of 6.7% until 2027.
Given this backdrop, fundamentally strong tobacco stocks Altria Group, Inc. (MO) and Vector Group Ltd. (VGR) might be ideal additions to your portfolio.
Altria Group, Inc. (MO)
MO and its subsidiaries manufacture and distribute smokeable and oral tobacco products in the United States. The corporation sells cigarettes, primarily under the Marlboro brand. It sells tobacco products to wholesalers and major retail businesses.
On October 27, 2022, MO signed a strategic alliance with JT Group. This collaboration is expected to expand MO's current tobacco product offering.
"We are excited to begin a new partnership with JT Group, a leading international tobacco company," said Billy Gifford, Altria's Chief Executive Officer. "We believe this relationship can accelerate harm reduction for adult smokers across the globe."
On October 19, 2022, MO announced its agreement with a subsidiary of Philip Morris International Inc. (PM), which provides MO with cash payments totaling approximately $2.70 billion in consideration for granting the IQOS Tobacco Heating System exclusive U.S. commercialization rights.
MO has paid dividends for 52 consecutive years. Over the last three years, MO's dividend payouts have grown at a 3.96% CAGR. While MO's four-year average dividend yield is 7.35%, its current dividend translates to a 7.89% yield.
MO's gross profit came in at $3.70 billion for the third quarter that ended September 30, 2022, up marginally year-over-year. Its operating income came in at $3.11 billion, up 5.5% year-over-year. Moreover, its EPS came in at $0.12, compared to a loss per share of $1.48 in the year-ago period.
Street expects MO's revenue to increase marginally year-over-year to $21.06 billion in 2023. Its EPS is estimated to grow 4.3% year-over-year to $5.05 in 2023. It surpassed EPS estimates in three of four trailing quarters. Over the past year, the stock has gained 10.2% to close the last trading session at $47.63.
MO has an overall B rating, which equates to a Buy in our POWR Ratings systems. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality. Within the A-rated Tobacco industry, it is ranked #3 out of 9 stocks. Click here for the additional POWR Ratings for MO (Growth, Value, Stability, Sentiment, and Momentum).
Vector Group Ltd. (VGR)
VGR and its subsidiaries manufacture and sell cigarettes in the United States. It operates in two segments, Tobacco and Real Estate.
On November 1, 2022, Howard M. Lorber, President, and CEO, said, "Vector Group delivered record tobacco quarterly revenues in the third quarter as we continued to capitalize on favorable market opportunities to substantially increase value and market share."
VGR's four-year average dividend yield is 9.43%. Its current dividend translates to a 7.02% yield.
VGR's total revenues came in at $378 million for the third quarter that ended September 30, 2022, up 26.6% year-over-year. Its tobacco segment revenue came in at $378 million, up 26.9% year-over-year. Moreover, its operating income came in at $83.90 million, up 2.3% year-over-year.
VGR's revenue is expected to increase by 16.5% year-over-year to $1.42 billion in 2022. Its EPS is expected to grow 8.3% per year for the next five years. Over the past three months, the stock has gained 16.9% to close the last trading session at $11.40.
VGR has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B for Value and Quality. It is ranked #4 in the same industry.
We have also rated VGR for Growth, Stability, Sentiment, and Momentum. Get all VGR ratings here.
MO shares were trading at $47.50 per share on Monday afternoon, down $0.13 (-0.27%). Year-to-date, MO has gained 6.26%, versus a -15.10% rise in the benchmark S&P 500 index during the same period.