With the tobacco industry registering gains north of 20%, investors seem to be fond of the industry and have high expectations about more growth in the near term. In a Bloomberg interview last June, Susan Cameron, CEO of Reynolds American, said that the industry registers higher profits and sees a decline in smoker litigation on the back of regulations that make it harder to sue cigarette companies. In December, Moody’s issued a report suggesting an operating profit growth for US and European tobacco companies in 2016. The rating agency added that due to high pricing flexibility, the profitability of tobacco products in the US remains at the “higher end of the consumer products spectrum”.
With this in mind, we decided to take a closer look at the top five tobacco stocks that the investors from our database are fond of. We pay attention to the hedge fund sentiment because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Through extensive testing, we determined that the best approach is to follow hedge funds into the top small-caps that they are collectively bullish on, which can outperform the market by 95 basis points per month on average (see more details here).
#5 British American Tobacco PLC (ADR) (NYSEMKT:BTI)
Investors with Long Positions (as of September 30): 15
Aggregate Value of Investors’ Holdings (as of September 30): $398.58 Million
During the third trimester the number of hedge funds backing British American Tobacco PLC (ADR) (NYSEMKT:BTI) inched up by one while the aggregate value of these holdings appreciated by 20%. Nevertheless, these funds held around 0.40% of the company’s outstanding stock at the end of September. Tom Russo‘s Gardner Russo & Gardner is the largest shareholder of British American Tobacco PLC (ADR) (NYSEMKT:BTI) within our database as it holds some 4.97 million shares of the company. Analysts seem to be mixed on the stock. Earlier this month, Citigroup reiterated its ‘Buy’ rating on the stock. Previously, in October and November, JPMorgan and Goldman Sachs reaffirmed their ‘Buy’ and ‘Neutral’ ratings.