The novel coronavirus pandemic has been hard on a lot of industries, including vaping and vaping stocks.
A national survey conducted by the Centers for Disease Control and Prevention found that the number of people, notably American teenagers, who are vaping has plummeted. The survey found that just under 20% of high school students and 5% of middle school students said they were recent users of electronic cigarettes and other vaping products.
That represents a sizable decline from the same survey in 2019 that found 28% of high school students and 11% of middle school students recently vaped. The survey suggests that the number of school kids who vape fell by 1.8 million in a year, from 5.4 million to 3.6 million.
Part of that decline can be attributed to The Food and Drug Administration (FDA) banning flavored vaping devices that were popular with teens. However, the sharp decline can also be ascribed to the global pandemic that had teenagers going to school online from home rather than hanging out in school parking lots and parks where they were able to vape with their friends.
While vaping is not down for the count, it has been dealt a blow by the pandemic. Still, hope remains for the industry. Market research firm Grand View Research states that the global vape market was valued at $12.41 billion in 2019 and is expected to expand at a compound annual growth rate of 23.8% between 2020 and 2027, driven by demand from the millennial generation and a growing switch away from traditional tobacco products to vaping.
Here are four vaping stocks that are likely to withstand the current downturn and survive.
- Altria (NYSE:MO)
- Philip Morris International (NYSE:PM)
- British American Tobacco (NYSE:BTI)
- Tilray (NASDAQ:TLRY)
Vaping Stocks: Altria (MO)
We’ll start with Altria, which is the largest tobacco company in the U.S. While it might be the biggest cigarette and vape company in America, that fact hasn’t insulated Altria or its stock from the decline in use of its products.
MO stock has fallen 30% in the past five years and now trades at less than $40 a share. Altria’s decline can be traced to the fact that adult smoking rates in America fell from 20.9% to 13.4% in the past 15 years, according to the CDC, making it increasingly difficult for Altria to sell once mighty cigarette brands such as Marlboro.
Steep increases in excise taxes imposed by state governments throughout the U.S. also hurt the company’s core business.
As traditional cigarettes and other tobacco products fell, Altria bet big on vaping, making a $12.8 billion investment in Juul, the main manufacturer of flavored vape products that the FDA has banned. The result was Altria taking a $4.5 billion write-down last year on its Juul investment.
In the past 12 months, Altria has moved aggressively into heated tobacco devices that support vaping. Despite these efforts at diversification, Altria still generated more than 85% of its revenue from traditional tobacco products in the first half of 2020.
If there’s a silver lining for the company it is that MO stock looks relatively cheap at 8x forward earnings, and the company raised its dividend this year for the 55th time in 51 years to an annualized rate of $3.44 per share, which equates to a hefty yield of 8%.
Philip Morris International (PM)
Philip Morris is an established tobacco brand that is having some success with vaping. The company currently has the only electronic cigarette that’s been approved for sale in the U.S. while carrying a reduced-risk label from the FDA. That’s a big boost for the company as it pushes further into vaping products.
What also makes Philip Morris International one of the best vaping stocks to buy is that it’s a truly global company and sells its products in many different countries around the world. Philip Morris has made clear that it is focused on and commitment to a smoke-free future that includes more vaping products and less traditional tobacco. The company has spent billions of dollars on developing a broad portfolio of next-generation products that advance vaping.
While PM stock is off its March bottom, it remains 13% below its 52-week high at under $79 a share. For savvy investors with a long-term horizon, the current stock price might look like a bargain. Additionally, PM stock pays an annual dividend of $4.80 per share that’s currently yielding an impressive 6.1%.
While the stock price reflects the fact that the company is operating in an extremely tough market, many industry observers consider Philip Morris to be best of breed among tobacco and vaping companies. If it can continue to stay ahead of the competition, its stock might appreciate higher in coming months and years.
British American Tobacco (BTI)
With an $85 billion market capitalization and a 7.7% dividend yield, BTI stock deserves some attention. And British American Tobacco has traditionally been a good investment, delivering a compound annual return of 13% over the past 30 years.
However, as with the entire tobacco market, British American Tobacco has suffered in recent years as more and more people turn away from tobacco products. The company is pivoting towards vaping and non-combustible tobacco products. British American Tobacco has vowed to become “carbon neutral” by 2030 and has set itself the ambitious goal of securing 50 million vaping customers globally by 2030 as well.
These lofty goals haven’t helped BTI stock much. The company’s share price is down 17% year-to-date. Investors continue to discount British American Tobacco’s stock along with the broader industry. This despite the fact that many investors remain bullish on the company’s ability to diversify and its long-term prospects.
A majority of analysts currently have a “buy” rating on the stock. Investors who take the plunge on this vaping play should be patient. In the meantime, it might help to focus on British American Tobacco’s generous dividend that it pays to shareholders.
When you think of vaping stocks, Tilray is a natural fit.
While Tilray is largely a Canadian cannabis company, it is also focused on vaping products. And the stock has had a good run recently, jumping 18% on Oct. 8 after vice presidential candidate Kamala Harris promised during a debate that if elected, she will work to “decriminalize marijuana … and expunge the records of those who have been convicted of marijuana.”
On the vaping side of its business, Tilray launched this year its all-in-one THC vape pen that is used with marijuana consumption in jurisdictions where it is legal. Indeed, vaping is part of Tilray’s efforts to diversify and expand. It’s been tough sledding for the company so far, reporting negative financial results and losses for five consecutive quarters.
The bad results have led to a steep decline in TLRY stock, which is down 65% on the year and now trades just under $6 per share. What’s needed is for more governments (state and federal) to loosen restrictions on marijuana possession and use. Decriminalization would certainly help.
Analysts seem to think that politicians are moving in that direction. The 13 analysts who have 12-month price forecasts for Tilray have a median target of $9 a share, with a high estimate of $15 and a low estimate of $5.60, which is near the stock’s current level.
The median price target would represent nearly a 50% increase from the stock’s current price. It’s not without risk, but investors may be rewarded for taking a position in Tilray now while the stock is beaten down.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.