[Editor’s note: “4 Vaping Stocks to Consider Buying Now” was previously published in September 2019. It has since been updated to include the most relevant information available.]
It’s suddenly a very bad time to be in the vaping business. The U.S. Food and Drug Administration has been threatening a major crackdown against these products for almost a year now. However, the risk has started to feel more real, as numerous stories are coming out about illnesses and deaths related to vaping.
At this time, it’s not clear what portion of this is due to vaping itself and what portion is due to black market vape products that people decide to use. Regardless, the media has been quick to label the major players in the space, like Juul, as potential wrong-doers. As a result, investors have been dumping any stocks related to vaping.
This panicky reaction is creating quite the opportunity, however. Like in the 1990s when the government levied a huge fine against cigarette companies and overhauled tobacco regulation, we could be at an inflection point today. The government is likely to put some stringent rules in place around vaping shortly. This seems negative. But as anyone who bought tobacco stocks back then knows, more regulations aren’t necessarily a death knell for companies.
In fact, it can even be a positive for existing companies, as strict rules block new competition. In a few years, we may look back at this vaping scare as a huge buying opportunity. Here are four vaping stocks to have on your radar right now.
Turning Point Brands (TPB)
Arguably, Turning Point Brands (NYSE:TPB) is the single best name to own if you’re bullish on vaping in the near term. Sure, Juul is the most well-known play, but it isn’t publicly traded. If you want Juul, you can only get access to a minority position in it via the far larger Altria (NYSE:MO). By contrast, if vaping promptly recovers, Turning Point Brands should be a huge near-term winner.
For those unfamiliar, Turning Point Brands has a variety of businesses in the tobacco and marijuana spaces. However, the star of the show is its NewGen division, which sells vaping and e-cigarette products. NewGen makes up nearly half the company’s sales and its results have been booming in recent quarters.
Despite that, the current health scare has absolutely vaporized TPB’s stock price. Shares are down from $54 to $29 just since July. That’s pretty crazy for a well-established company that pays a dividend and sells for just 15x trailing earnings.
If vaping’s fall continues, Turning Point isn’t completely without options either. It has other businesses such as the Zig-Zag line of rolling papers that are benefiting greatly as marijuana legislation has greatly increased demand for the product.
Altria seems to have finally stopped the bleeding and has returned to the levels at which it started 2019. Still, shares lost nearly a quarter of their value since 2017. That’s quite the plunge for a stock that many folks own as a conservative income investment. However, the government’s crackdown has added risk to the MO stock story.
But with risk comes opportunity. Remember that Altria invested $13 billion to get its 35% stake in Juul. $13 billion isn’t chump change by any means, but folks are clearly overreacting now. Even if Juul were worth nothing, it’d still only be 15% of Altria’s market cap.
Altria’s stock has shed $30 billion in market cap recently, that’s more than double its investment in Juul. Besides, the company has plenty of other irons in the fire, including its stakes in Anheuser-Busch (NYSE:BUD) and Cronos (NASDAQ:CRON) among others.
As it is, the price of Juul shares on private exchanges has only dropped modestly. It seems unlikely that the U.S. will ban vaping entirely, and more regulation of the product would help big players like Juul keep other competition out. Even if the U.S. market largely goes away, Juul still has plenty of other countries to sell its products in.
Altria stock got too frothy at $80 a share a few years ago. Near $50 now, however, it’s a steal. The dividend yield is more than 6%, and the company will have no problem paying it out of its existing tobacco sales, even if vaping doesn’t become the company’s next big thing.
Philip Morris (PM)
Philip Morris (NYSE:PM) is less involved in this market than most of the other vaping stocks, but the tobacco giant is part of the discussion. That’s due to the fact that there are credible rumors that Philip Morris and Altria may merge again.
The companies famously split up in hopes of unlocking shareholder value by separating the international business from the declining, highly regulated American business. However, the market hasn’t given the separate firms the valuation boost that they had hoped for. It seems the two firms may come back together. In doing so, it’d give Philip Morris a big stake in the future of alternative tobacco, be it through its own iQOS products or Altria’s Juul investment.
If they don’t merge again, PM stock is attractive on its own as well. It’s not down quite as much of the rest of the vaping stocks, but shares are still off by a third recently. That has PM stock’s dividend yield up to 5.35%.
British American Tobacco (BTI)
British American Tobacco (NYSE:BTI) is another of the traditional cigarette giants.
Known best in the U.S. for its Lucky Strike brand, British American is another giant globally even if it isn’t as big as Altria in the U.S. It has sales of $30 billion annually.
And while British American Tobacco doesn’t have any stake in Juul, it’s also making a decent move into the vaping space. The company currently pulls in more than $2 billion annually from non-traditional tobacco including oral products, heat-not-burn tobacco and vaping. BTI has a roadmap to get this figure from $2 billion now to more than $6 billion annually by 2023.
BTI stock hasn’t been hammered quite as hard as Altria this year as it has less exposure to the U.S.
Overall, however, BTI stock is down more than 50% since its 2017 peak, and now pays a more than 7% dividend yield. And it’s nicely positioned to benefit if vaping recovers, while having less downside if things continue to head south on the regulatory front.
At the time of this writing, Ian Bezek owned MO and BTI stock. You can reach him on Twitter at @irbezek.