Tobacco stocks are smokin’ hot in 2014, up 14% year-to-date through June 19. Doubling the pace of the S&P 500, tobacco stocks might be poised for growth for the first time in years. There are several reasons for this optimism, not the least of which are e-cigs, the devices meant to replace traditional cigarettes.
But is it enough to keep the good times rolling?
I believe it is. Here are five reasons tobacco stocks will continue the momentum ride they’ve been on the past three months. The exact duration of this ride is heavily dependent on how two of these reasons play out over the next five years. If both deliver the goods (and that’s a big “if”), tobacco stocks would be one of the best long-term investments available.
Tobacco Stocks and E-Cigs
USA Today’s Matt Krantz recently was asked by a reader if e-cigs will light up Altria (MO) stock. While he didn’t specifically answer the question affirmatively, he did imply (via Patrick Hughes, an analyst with Height Analytics) that the Food and Drug Administration will oversee e-cigs and view them in a positive manner.
With e-cigarette sales of $1.5 billion in 2013 (Wells Fargo expects $24 billion by 2023) and all the major players marketing at least one brand nationwide, it’s only a matter of time before investors recognize that e-cigs are an extremely positive development for tobacco stocks. That’s especially true when you consider that, for the first time in year,s they’re able to advertise without any restrictions. You can be sure they’ll spend large.
Tobacco Stocks and Marijuana
Big Tobacco might play coy about its intentions for marijuana but there’s no doubt the market is huge. According to a report by Rand Corporation the amount of marijuana consumed in the U.S. between 2002 and 2010 increased by 40%, with consumers spending as much as $60 billion on the stuff in 2010 alone. When you consider that the combustible cigarette market in 2013 is estimated at $85 billion, it stands to reason that e-cigs aren’t nearly as big an opportunity as marijuana is. Investors in tobacco stocks can’t ignore this reality.
InvestorPlace staff writer Robert Martin recently opined on the subject of marijuana stocks and the tobacco industry. His conclusion: Big Tobacco will stay away from marijuana until the feds legalize it. Once marijuana legalization goes coast to coast, they’ll swoop in for the kill, taking out all the bit players currently trying to benefit from the happenings in Colorado and Washington. Marijuana will be the long-term savior for tobacco stocks.