Five Tobacco Stocks to Buy

#2 Philip Morris International Inc. (NYSE:PM)

– Hedge Funds with Long Positions (as of December 31): 35

– Value of Hedge Funds’ Holdings (as of December 31): $3.03 Billion

The smart money sentiment towards Philip Morris International Inc. (NYSE:PM) declined significantly during the October-to-December period, with the number of funds invested in the company dropping to 35 from 42 quarter-over-quarter. What’s more, the value of those funds’ positions declined to $3.03 billion from $3.13 billion quarter-on-quarter. The company’s subsidiaries and affiliates are manufacturing and selling cigarettes, tobacco products and other nicotine-related products in markets outside the United States. Philip Morris’ total cigarette shipments declined 1.0% in 2015 to 847.3 billion units, a rate that is notably lower than the international cigarette market shipments decline of 2.6%. According to fresh estimates, Philip Morris had a market share in the international cigarette market (excluding the U.S) of approximately 15.6% in 2015, up from 15.5% in 2014. Excluding the Chinese market, PM’s share accounted for 28.7% in 2015, which increased from 28.5% in 2014 and 28.3% in 2013. The maker of Marlboro cigarettes (the best-selling international cigarettes) pays out an annual dividend of $4.08 per share, which corresponds to a current dividend yield of $4.14%. Philip Morris International’s shares have enjoyed a great run in the past year or so, advancing 24% in the past 12 months. Andy Brown’s Cedar Rock Capital is the largest equity holder of Philip Morris International Inc. (NYSE:PM) within our database, holding 12.27 million shares as of the end of December.

#1 Altria Group Inc. (NYSE:MO)

– Hedge Funds with Long Positions (as of December 31): 42

– Value of Hedge Funds’ Holdings (as of December 31): $1.65 Billion

Altria Group Inc. (NYSE:MO) is the most popular tobacco stock among the hedge funds followed by Insider Monkey, with 42 funds holding shares of the company at the end of the December quarter. This compares with a number of 41 registered at the end of the prior quarter. The value of hedge funds’ positions in the company grew to $1.65 billion from $1.63 billion quarter-on-quarter. Altria Group is a holding company whose wholly-owned subsidiaries include Philip Morris USA Inc.; John Middleton Co., which manufactures and markets machine-made large cigars and pipe tobacco; UST LLC, which manufactures and markets smokeless tobacco products and wine through its wholly-owned subsidiaries; and others. Altria Group’s 2015 net revenues, which also include excise taxes billed to customers, increased $912 million or 3.7% year-on-year to $25.43 billion, mainly due to higher net revenues in the smokable products segment. It should be noted that the company forecasts 2016 full-year adjusted diluted EPS growth rate in the range of 7%-to-9%. The stock is priced around 18.4-times expected earnings, significantly below the forward P/E ratio for the Tobacco industry. Shares of Altria are up by 19% in the past 12 months. Investors should also be aware that the company pays an annual dividend of $2.26 per share, which yields 3.66%. Cliff Asness’ AQR Capital Management owns 3.41 million shares of Altria Group Inc. (NYSE:MO) as of the end of the December quarter.

Disclosure: None