Many investors have written off the tobacco industry. Smoking rates are declining and the popularity of ethical investing continues to escalate.
But it would be premature to opt for this still viable sector. New growth opportunities in areas such as vapen and cannabis have fundamentally changed the investment thesis. Indeed, it has risen 40.8% so far this year, considerably better than the wider market.
Arca Tobacco index versus S & P 500 2019 version
We have looked at three tobacco stocks that have strong upside potential. One is a tobacco leaf specialist who bets a lot on cannabis, the second is an emerging name in the vapor industry and the third is a cigarette giant who is currently trying to diversify his offer
1. Pyxus International: From tobacco leaf to cannabis
Pyxus International (NYSE :), formerly Alliance One International, is engaged in the purchase, processing, storage and sale of tobacco leaves used in international branded cigarettes. The company generates income, primarily through the sale of unprocessed tobacco leaf, along with the relevant processing costs that are charged by tobacco producers worldwide.
In an attempt to diversify, the company announced in February that it is entering the industrial hemp industry in the United States and acquiring majority stakes in two Canadian private cannabis companies, Canada's Island Garden, a licensed producer, and Goldleaf Pharm, an applicant for producing and selling medicinal cannabis . Pyxus published a press release on 8 February on the acquisitions, including the 75% stake in Canadian Garden Island and an 80% stake in GoldLeaf Pharm.
It also made an investment in a North Carolina company, Criticality, and acquired a 40% stake with the ability to increase it to 50% after March 31, 2020. Criticism is part of a state pilot program aimed at extracting cannabidiol (CBD) from industrial hemp, with a five-year goal of becoming a leader in CBD production and consumer products.
Pyxus, with a market capitalization of approximately $ 227 million and an annual turnover of $ 1.2 billion until the end of the fiscal year 2018, has seen its inventory rise 110% since the beginning of 2019. for $ 25.00.
Despite the strong start to the year, we still expect an important advantage from here. The company is well positioned to take advantage of new opportunities in the cannabis and CBD industry.
2. Turning Point Brands: Vaping Specialist
Turning Point Brands (NYSE 🙂 wants to be the leader in the next generation of tobacco products and the vapor market. It has three product categories: Smokeless products such as chewing tobacco, smoking products such as Zig-Zag cigarette paper and NewGen, which markets vapor products under brand names such as Vaporfi, Vapor Beast, VaporSupply and VaporShark.
Although Juul – of which Altria has a stake of 35% – is the big mover and shaker in space, Turning Point Brands also seems an attractive vapor game. grew 28%, driven by 86% growth in NewGen's vaping devices and fluid business, which represented 47% of sales in the quarter.
Last autumn, Turning Point Brands invested in a closed Canadian American Standard Hemp (CASH), which converts hemp into CBD liquids, capsules, vape cartridges and sprays. "Our partnership with CASH already offers quick dividends," said Larry Wexler, CEO of TPB, at the conference call in the fourth quarter.
"We are now launching our own range of proprietary products to expand our sales footprint in the fast-growing CBD market," he added. They are sold under the Nu-X brand.
Turning Point's stock, which closed last night at $ 46.00, has so far increased by around 69% this year. Year-to-date the shares have risen by 139%.
We believe that the company is in an excellent position to become a leading name in the sheep industry, making it a promising bet in the future.
3. Altria: from cigarettes to vape against weeds
Altria Group (NYSE 🙂 is one of & # 39; the world's largest producers and sellers of tobacco, cigarettes, and related products. It controls the rights to Marlboro in the United States, where the brand has 40% of the market.
However, with smoking on the downturn in the US, Altria is projecting 4% -5% annual volume deportations for this year until 2023. As a result, the company has taken steps to diversify from its major tobacco activities with investments in sheep, cannabis and alcohol.
In December, Altria took a 35% stake in Juul, which exceeded more than $ 1 billion in sales last year, compared to just $ 200 million in 2017. Altria CEO Howard Willard expects e-vapor sales to grow by 15% -20% annual rate, per volume, up to 2023.
Altria also played a role in entering the marijuana space when it invested $ 1.8 billion in the Canadian marijuana grower Cronos Group (NASDAQ :). Altria has a 45% interest, with an option to increase it to 55%. Altria also has a 10% interest in Anheuser-Busch InBev (NYSE :).
The Altria share, which ended yesterday at $ 56.66, rose 14.7% in 2019. We see more upside potential in the coming months as the company positions itself as a diversified game in the tobacco, sheep and cannabis spaces.
