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3 Top Tobacco Choices for Savvy Investors

Despite strict consumption regulations, the tobacco industry's momentum endures, owing to consistent demand, new product innovations, and extensive advertising. Hence, investors could add fundamentally sound tobacco stocks British American Tobacco (BTI), Japan Tobacco (JAPAY), and Imperial Brands (IMBBY) to their portfolios today. Continue reading…

Despite the stringent government regulations targeting the reduction of tobacco usage, the industry is poised for significant expansion in the coming years owing to its robust demand, the introduction of innovative products, and comprehensive marketing initiatives.

As a result, it could be wise to invest in robust tobacco stocks, British American Tobacco p.l.c. (BTI), Japan Tobacco Inc. (JAPAY) and Imperial Brands PLC (IMBBY), which stand to benefit from the industry’s tailwinds. Let’s understand this in detail.

Despite significant health concerns and the possibility of fostering addiction, the tobacco industry is thriving, with the United States ranking among the world's leading producers. The industry's growth remains resilient even in the face of stringent regulations enacted by numerous nations to reduce tobacco consumption.

Also, the sector’s expansion is fueled by an increasing prevalence of smoking and consistent demand for tobacco products. Roughly 28.3 million American adults are active cigarette smokers.

Moreover, the industry's growth is being propelled by the introduction of innovative tobacco products such as heated tobacco items, dissolvable tobacco, menthol cigarettes, and smokeless tobacco. These offerings cater to consumer preferences and sustain demand, playing a pivotal role in the industry's continued expansion.

Remarkably, the tobacco industry is also spending billions of dollars on advertising and promotional endeavors. Going forward, the global tobacco products market is expected to grow at a CAGR of 4.4%, reaching $316.79 billion by 2027, according to ReportLinker.

Against this backdrop, fundamentally sound tobacco stocks BTI, JAPAY, and IMBBY, which are poised to benefit from the industry’s growth prospects, could make ideal additions to your portfolio.

Let’s discuss the featured stocks in detail.

British American Tobacco p.l.c. (BTI)

Headquartered in London, the United Kingdom, BTI is a consumer-centric goods company that offers tobacco and nicotine products. Its product range includes vapor, oral, and tobacco heating items. The company operates across segments in the United States; Asia Pacific; Middle East and Africa; Americas; and Europe.

On June 23, BTI inaugurated an Innovation Hub in Trieste, Italy. The €500 million ($548.73 million) investment integrates advanced laboratories, production offices, technical chambers, and twelve dynamic production lines for New Category commodities.

The establishment should yield substantial benefits for BTI. By spearheading New Category products' comprehensive distribution in Italy, BTI secures a competitive edge, tapping into a burgeoning market. This move could result in increased revenue streams, market dominance, and heightened brand visibility.

For the six months that ended June 30, 2023, BTI’s revenue increased 4.4% year-over-year to £13.44 billion ($17.12 billion). Its profit from operations rose 61.4% from the year-ago value to £5.94 billion ($7.56 billion). Also, its profit from the period came in at £4.04 billion ($5.14 billion), up 108.2% from the prior year’s period.

Additionally, the company’s adjusted earnings per share increased 8.5% year-over-year to £1.82.

For the fiscal year ending December 2024, BTI’s revenue is expected to increase 1.3% year-over-year to $36.16 billion. The company’s EPS for the same period is expected to come in at $4.50, up 11.9% from the prior year. Shares of BTI have marginally gained over the past five days to close the last trading session at $32.78.

BTI’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

BTI has a B grade for Quality, Stability, and Sentiment. It has topped the A-rated 10-stock Tobacco industry.

In addition to the POWR Ratings I’ve just highlighted, you can see BTI’s ratings for Momentum, Growth, and Value here.

Japan Tobacco Inc. (JAPAY)

JAPAY, headquartered in Tokyo, Japan, produces and markets tobacco items, pharmaceuticals, and processed foods. The company’s product portfolio encompasses cigarettes, E-vapor, cigars, pipes, smokeless options, hookah, kretek items, and more.

In its fiscal second quarter release, JAPAY reported an intensified investment focus on Heated Tobacco Sticks (HTS) to underpin forthcoming growth. The Ploom X, JAPAY's advanced HTS device, debuted in six markets, including the recent Czech Republic launch in June, and is scheduled for a September release in Switzerland.

The ongoing global expansion aims for 14 market launches by 2023-end and 28 by 2024-end. This could result in increased market share, revenue influx, and enhanced brand presence, solidifying JAPAY's position as a dominant player in the industry.

Additionally, for the fiscal year 2023, the company has increased its revenue forecast by JPY 130 billion ($906.35 million). Adjusted operating profit on a reported basis has been revised higher by JPY 16 billion ($111.55 million).

The company has also made positive adjustments to operating profit by JPY 21 billion ($146.41 million), profit by JPY 17 billion ($118.52 million), and free cash flow by JPY 76 billion ($529.86 million).

During the fiscal second quarter, JAPAY’s revenue increased 6.2% year-over-year to JPY 727.50 billion ($5.07 billion). Its operating profit rose 1.2% from the year-ago value to JPY 207.20 billion ($1.44 billion). Also, the company’s profit came in at JPY 142.30 billion ($992.10 million), up 1.7% from the prior year’s quarter.

The consensus revenue estimate of $19.19 billion for the fiscal year ending December 2024 reflects a 3.4% year-over-year improvement. The consensus EPS estimate for the ongoing year is $0.01. Moreover, the company topped the consensus revenue estimates in all four trailing quarters.

Over the past year, the stock has gained 28%, closing the last trading session at $10.75.

JAPAY’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our pro­­­­­­­­­prietary rating system.

JAPAY has an A grade for Stability and a B for Quality. It is ranked #3 out of 10 stocks within the Tobacco industry.

Click here to access additional JAPAY ratings (Growth, Value, Momentum, and Sentiment). 

Imperial Brands PLC (IMBBY)

Based in Bristol, the United Kingdom, IMBBY is a dynamic consumer goods enterprise. Its Tobacco & NGP segment engages in manufacturing, marketing, and sales of tobacco, next-gen products, and related items. Meanwhile, the Distribution arm handles the distribution of these products on behalf of manufacturers.

On June 23, IMBBY unveiled its acquisition of a range of nicotine pouches from TJP Labs, a strategic move to enter the modern oral market in the United States. The transaction empowers ITG Brands, IMBBY's U.S. arm, to provide a wide array of 14 product variations within a high-performing pouch format, catering to legal adult American consumers.

Moreover, on February 22, IMBBY launched the first all-new upgrade of its Pulze heated tobacco device. The innovation aligns with the company’s pursuit of captivating, less harmful products, presenting Pulze as an attractive option for consumers transitioning from combustible cigarettes, potentially reducing harm.

Heated tobacco is pivotal in IMBBY's plan to forge a focused, robust next-gen product lineup. Notably, vaping innovations such as blu 2.0 and blu bar devices, alongside modern oral progress with nine Zone X variants, are exemplifying the company's dedication to diversified advancement.

For the second quarter that ended March 31, 2023, IMBBY’s adjusted revenue increased 4.8% year-over-year to £3.66 billion ($4.67 billion). Its adjusted operating profit rose 7.3% from the year-ago value to £1.72 billion ($2.19 billion).

Moreover, the adjusted company’s profit for the year grew 5.1% year-over-year to £1.18 billion ($1.50 billion), while its adjusted EPS came in at £1.19, up 4.9% from the prior year’s period.

The consensus revenue estimate of $12.32 billion for the fiscal year ending September 2023 indicates a 17.5% year-over-year improvement. Similarly, the consensus revenue estimate of $12.44 billion for the next fiscal year (ending September 2024) reflects a marginal rise year-over-year.

Over the past month, the stock has gained 4%, closing the last trading session at $23.63.

IMBBY’s favorable outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our pro­­­­­­­­­prietary rating system.

IMBBY has a B grade for Growth, Value, and Stability. It is ranked #2 out of 10 stocks within the same industry.

Click here to access additional IMBBY ratings for Sentiment, Quality, and Momentum.

43 Year Investment Pro Shares Top Picks

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Steve Reitmeister’s Trading Plan & Top Picks >

BTI shares were trading at $32.90 per share on Thursday afternoon, up $0.12 (+0.37%). Year-to-date, BTI has declined -14.33%, versus a 17.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.


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