Tobacco Sector: Going Up In Smoke?

 |  Includes: LO, MO, PM, RAI, UVV, VGR
by: Doolan Wesley

The tobacco sector has been an unbelievably consistent option for growth and stability over the past few years. There is no doubt that this sector pays great dividends, offers steady and relatively less risky growth in an uncertain market. However, the aggressive campaigns being run in the U.S. recently could have a huge effect on these tobacco companies and buyers might want to beware.

Altria (NYSE:MO), Philip Morris International Inc. (NYSE:PM), Reynolds American Inc. (NYSE:RAI), Lorillard Inc. (NYSE:LO), Vector Group Ltd. (NYSE:VGR), and Universal Corporation (NYSE:UVV) are all potential stocks in the tobacco sector that could be effected by this campaign. Despite being attractive and many paying out hefty dividends right now, one can only wait and see how effective these new campaigns are on the next generation of smokers. The continually increasing price of cigarettes too is another reason many smokers might be trying to break the habit. The following chart shows the declining prevalence of smoking in the United States over a 50 year span, it can be found here.

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The tobacco sector has shown extraordinary growth over the past few years in comparison to the S&P 500. (Click to enlarge)

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This could be viewed as great news, or it could be looked at as another bearish signal that perhaps this sector is overpriced and too high in comparison to the rest of the market. Next time one considers buying shares in the tobacco sector, they should be wary that perhaps the market for cigarettes is beginning to decline.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.