Think tobacco and soda stocks have nothing in common?
As I noted yesterday, the cigarette and soda industries are quite similar. For investors, that’s a sign for investors to stay away from names like Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) despite their blue-chip status and powerful brands.
Soda stocks meet all three requirements of slow-growth, high-dividend names that I like to lump under the label of “tobacco stocks.” The requirements include high barriers to entry in the industry, a strong balance sheet and a commitment to rewarding shareholders.
To take it a step further, though, tobacco stocks like Altria (NYSE:MO), Reynolds American (NYSE:RAI) and Philip Morris International (NYSE:PM) — as well as soda stocks like Coca-Cola and PepsiCo — increasingly share something else: a social stigma.
More and more, soft drink consumption is being seen as a vice just like smoking, meaning growth is going to be harder and harder to come by. In fact, per capita consumption recently hit lows last seen in 1987. And soda doesn’t even kowtow to the same level of regulation as cigarettes … yet. But regulators and public health officials are increasingly speaking out against soft drinks, so just you wait.
As I wrote yesterday: “Anti-tobacco laws did not spring up overnight. It was a gradual process taking place over decades. Smoking rates declined over time, driven more by changing attitudes than changing laws. Is something similar happening to soft drinks? Indeed, it would appear so.”
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, Sizemore Capital was long VIG. Click here to receive his FREE 8-part investing series that will not only show you which sectors will soar but also which stocks will deliver the highest returns. The series starts November 5 and includes a FREE copy of his 2014 Macro Trend Profit Report.