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The recessionary environment of the last few years has been good to the tobacco industry. Smoking is a simple pleasure and a cigarette is a source of comfort for consumers in times of economic stress. Even while aware of the health risks, smokers are loathe to quit, and this attitude in turn has helped these stocks gain in the last few years.

Major players in the tobacco market include Philip Morris International (PM), Altria Group (MO), Reynolds American (RAI) and Lorrillard (LO). While evidence of an economic recovery means that these stocks could somewhat lose their allure as a defensive play, there is still scope for growth.

Overseas markets present the most potential for growth, considering that incomes are rising there, allowing more people to indulge in the simple pleasure of a brand name cigarette. Not only is there less scope to grow in developed markets by bringing more new consumers into the fold, but the regulatory environment and scope for lawsuits present a threat to tobacco companies in these markets.

Most recently, Canadian consumers have filed a class action lawsuit seeking more than $27 billion in damages against some major tobacco companies. The plaintiffs seek damages for the harmful effects they say they suffered as a result of smoking cigarettes from these companies.

Taking overseas growth potential into account, Philip Morris International looks well placed compared to its competitors. The company sells its products in more than 100 countries and has about a 16 percent share of the international cigarette market, not including the United States. And excluding the Chinese and U.S. markets, Philip Morris reports that its international market share is more than 25 percent. The company has also increased its global market share for the fourth successive year in 2011, according to Philip Morris.

Philip Morris' Marlboro brand is well known internationally and can help draw in consumers overseas. Also, the company has other well-known brands such as Philip Morris and Chesterfield in its lineup and also developed brands for sale locally in international markets. Diana, for instance, is a Philip Morris brand for the Italian market. Similarly, the company has local brands for other markets such as Greece, the Philippines and Pakistan, among others.

The company's strength comes through in its financials, with Philip Morris reporting that its earnings per share was up 23 percent to $4.85 in 2011, from 2010 levels. For 2012, the company is anticipating EPS of up to $5.35.

Besides growing its earnings, Philip Morris is also rewarding shareholders by hiking up its dividend payments and engaging in share buybacks. The company's quarterly dividend for 2011 was up 20 percent from 2010 levels to $0.77, making for an annual dividend of $3.08 per share.

For 2011, the company bought up $5.4 billion worth of its stock. More buybacks are on the way, with Philip Morris reporting that it expects to spend $6.0 billion on stock buybacks in 2012.

At its current stock price of about $89 the company's price to earnings ratio is 18.35. Price to earnings for Philip Morris competitors are in a similar range, with Lorillard at 16.97, Altria at 18.9 and Reynolds American at 17.27 (finance.yahoo.com). Looking ahead, Philip Morris' forward price to earnings is 15.19, with Lorillard at 13.74, Altria at 13.13 and Reynolds American at 12.95.

One area in which Philip Morris stands out is its beta, a measure of how a stock will fare in relation to the overall market environment. With a beta of 0.82, the company appears to be better positioned than its peers to benefit from a bullish environment. Its competitors all have betas of less than 0.5.

This means that when global growth picks up and more attractive alternatives emerge, leading to a pullback from safe defensive plays, Philip Morris has scope to outperform the competition. In addition, overseas growth opportunities, as well as its well-entrenched market position, make a case for Philip Morris.

For investors, the company's current dividend yield of 3.4 percent is also desirable in today's low-yield environment.

In the long run, as people worldwide become more health conscious, the company's growth, like that of others in the industry, is likely to peter off. For the near term, for those not squeamish about investing in "sin stocks," Philip Morris appears to offer an attractive investment opportunity. And that's something investors would do well to put in their pipes and smoke.

Source: Philip Morris Smokes Out The Competition