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"My momma told me, 'You better shop around.'" - Smokey Robinson

Shopping around is a foundation of smart investing. Independent research allows investors to go beyond the stocks featured in the news and shop lesser-known alternatives. As simple as it sounds, you are better off shopping around than using the media as a filter that selects for popular or glamorous stocks.

As a producer of CAMEL, WINSTON,KOOL, and other cigarettes brands, Reynolds American, Inc. (NYSE:RAI) is well-known on Wall Street and Main Street. Its tobacco brands are present in gas stations and grocery stores, making them household names. Moreover, tobacco stocks like RAI are frequently debated as investment ideas. Analysts who argue against investing in tobacco stocks cite ethical arguments as well as legal and legislative headwinds. Proponents of tobacco investing argue that smokers are loyal customers and that ethical, legal, and legislative issues have made tobacco companies oversold.

This debate is moot and ignores how RAI compares to other stocks. In fact, there are better investing alternatives among cigarette stocks and other industries. Instead of RAI, consider the following stocks which offer better investment prospects:

Ticker

Company

Industry

Altman Z-score

Dividend Yield

INTX

Intersections Inc.

Consumer Services

4.97

6.9%

MO

Altria Group Inc.

Cigarettes

3.11

5.7%

PDLI

PDL BioPharma, Inc.

Biotechnology

5.16

9.8%

RIMG

Rimage Corp.

Data Storage Devices

5.83

5.5%

SCCO

Southern Copper Corp.

Copper

7.73

7.4%

SR

The Standard Register Company

Office Supplies

3.06

8.1%

VGR

Vector Group Ltd.

Cigarettes

3.09

9.1%

WSTG

Wayside Technology Group, Inc.

Computers Wholesale

5.61

5.5%

RAI

Reynolds American Inc.

Cigarettes

2.48

5.5%

Unlike RAI, these alternative stocks are all categorized as "safe" according to the Altman Z-score,* indicating that they are not considered bankruptcy risks. (RAI falls in the indeterminate "gray zone.") Moreover, INTX, MO, PDLI, RIMG, SCCO, SR, VGR, WSTG each offer a dividend yield that meets or exceeds the dividends paid by Reynolds.

What's more, these stocks are cheaper and have better growth prospects than RAI:

Ticker

P/E

EPS growth next 5 years

INTX

10.86

10.0%

MO

17.27

7.8%

PDLI

8.3

14.0%

RIMG

17.42

10.0%

SCCO

12.37

13.0%

SR

7.03

7.5%

VGR

17.69

11.0%

WSTG

10.64

22.0%

RAI

18.03

6.0%

Based on lower price-to-earnings ratios, these stocks are cheaper than RAI at current market prices. Better yet, they have higher growth prospects according to analyst projections. Rather than restrict yourself to concentrated investments in a familiar stock, consider a diversified mix of these nine securities as a more attractive alternative.

(If you abstain from tobacco stocks, simply remove MO and VGR from your portfolio and consider the six remaining stocks in this list.)

Disclaimer: This research is NOT a guarantee. This article uses third-party data and may contain approximations and errors. Please check estimates and data for yourself before investing.

This article was written to provide investor information and education, and should not be construed as a guarantee or investment advice. I have no idea what your individual risk, time-horizon, and tax circumstances are: please seek the personal advice of a financial planner.

*The Altman Z-Score is a measure of bankruptcy risk that is not based on stock price volatility. This score places companies into three groups: "safe" (Z-score > 2.99), "grey" (Z-score between 2.99 and 1.81), and "distressed" (Z-score < 1.81), and is surprisingly useful for identifying bankruptcy risk in the coming year. This method of segmenting companies uses of fundamental (financial statement) data and market capitalization only, not on price volatility. Beyond credit risk prediction, companies with higher Z-scores have historically outperformed companies with lower Z-scores, in aggregate. One sector has not been accurately modeled: Altman's Z-score has not accurately predicted the bankruptcy risk of financial companies.

"Distressed" was a label coined by researchers, and should not be taken to mean that any company is bankrupt or in default on the basis of this calculation alone. Credit scoring is not fate, only prediction based on relative past performance of companies grouped by key variables. Time will tell.

Source: 8 Stocks To Make Reynolds Butt Out