Altria Group Inc (MO), Philip Morris International Inc. (PM): One Potential Buy in a Declining Industry

From 2010 to 2012, the U.S. market for smokeless tobacco increased at CAGR of 7%. Also, the United States has become the largest market for moist snuff and this market has increased manifold in the last 10 years. Therefore, Universal Corp (NYSE:UVV) is set to benefit from an increase in the consumption of smokeless tobacco and cigars/pipe tobacco in the United States and worldwide.

The company trades at a trailing P/E of 13.4 compared to the P/E of 17.1 and 16.3 for Philip Morris International Inc. (NYSE:PM) and Altria Group Inc (NYSE:MO), respectively. With debt/equity of 0.2 (industry average is 3.2) and interest coverage of 10.4, I believe the company is sweetly positioned to utilize its strong balance for growth in the coming years.

Foolish takeaway

The negative long-term outlook of the cigarette industry will eventually catch up with Altria and Philip Morris International Inc. (NYSE:PM) one day. It’s better to play safe with your money and invest in a business which has a low-risk profile with opportunities for growth. If you would ask me, I would put my money into Universal.

Usman Ghani has no position in any stocks mentioned. The Motley Fool owns shares of Philip Morris International.

The article 1 Potential Buy in a Declining Industry originally appeared on Fool.com and is written by Usman Ghani.

Usman is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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