Five Tobacco Stocks to Buy Right Now

Though cigarette consumption is on a decline within the developed world for the past many years, the profits of the tobacco industry has grown significantly all this time. This rise in profits has translated well for tobacco stocks with a number of them delivering outsized returns to investors in the past decade. The relative outperformance of tobacco stocks can be gauged from the returns of the Dow Jones U.S. Tobacco Index, which has appreciated by 183.27% in the last 10 years, compared to the meager gain of 63.84% that the S&P 500 has generated during the same time. Since the tobacco industry has performed well despite hurdles like advertising and marketing bans imposed on it in several countries, a lot of analysts and investors continue to remain bullish on its future prospects. Taking that into consideration, in this article, we will take a look at the top-five most popular tobacco stocks at the end of second quarter among hedge funds covered by us and will discuss how these stocks have performed so far in 2016.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

#5 Vector Group Ltd (NYSE:VGR)

– Hedge Funds with Long Positions (as of June 30): 15

– Value of Hedge Funds’ Holdings (as of June 30): $187.13 Million

First up on our list is Vector Group Ltd (NYSE:VGR), which saw its ownership among hedge funds covered by us remain constant during the second quarter, but the aggregate value of their holdings in it decline by $51.1 million during the same time. Shares of the Florida-based company have been trading in the $20-$25 range for more than two years now and have lost almost 5% of their value so far in 2016. Though Vector Group Ltd (NYSE:VGR) is known for its tobacco business, its real-estate arm has been growing at a rapid pace in the last few years and now constitutes a major part of the company’s top-line. The stock currently pays a quarterly dividend of $0.40 per share, which based on its last trading price translates into a forward yield of over 7%. For its most recent quarter, the company reported EPS of $0.20 on revenue of $438.27 million versus analysts’ estimate of EPS of $0.22 on revenue of $430.7 million.

#4 British American Tobacco PLC (ADR) (NYSEMKT:BTI)

– Hedge Funds with Long Positions (as of June 30): 15

– Value of Hedge Funds’ Holdings (as of June 30): $641.21 Million

The number of hedge funds covered by us long British American Tobacco PLC (ADR) (NYSEMKT:BTI) inched up by one and the aggregate value of their holdings rose by $26.77 million during the second quarter. Funds that lowered their stakes in the company during that period included Andre F. Perold’s HighVista Strategies and billionaire Jim Simons‘ Renaissance Technologies. British American Tobacco PLC (ADR) (NYSEMKT:BTI)’s stock recently has reached its lifetime high of $131.34. Though the stock has corrected quite a bit since then, it is still up by 10.21% year-to-date. In June, analysts at Goldman Sachs upgraded the stock to ‘Conviction Buy’ from ‘Sell’ citing increased confidence in the company’s growth outlook amid a weakness in the pound and higher growth from e-cigarettes. In the last few months, money management firms in Europe have been pressured by activists and anti-tobacco organizations to stop investing in tobacco companies. However, the stocks of most European tobacco companies haven’t been significantly impacted by this and except for the French insurance giant Axa no other notable investors have sold off their positions in tobacco companies on ‘moral grounds’.