Although some might think the tobacco industry is dying due to increasing taxes and continued lawsuits against tobacco companies, investors believe that smokers’ addition to cigarettes and oblivion to ever-increasing prices makes them attractive investments, The New York Times reports. And even though tobacco companies continue to pay billions of dollars in settlements, many investors believe the worst of the litigation is over.
As proof of this, Altria Group have risen 10% since the company announced it would spin off its Kraft Foods unit and once again become a company solely focused on tobacco, as it was when it was formerly known as Philip Morris.
“Something that is forgotten in all of this is that people like to smoke,” said David Adelman, an analyst with Morgan Stanley. “It’s enjoyable, and there’s not an alternative product. If frozen dinners get too expensive, people will try something else. That’s not true with cigarettes; you’re not up at night worried about that product that is going to make cigarettes obsolete.”
“You take away Kraft out of Altria and you are left with a balance sheet that is extremely strong,” said Charles Norton, portfolio manager of the Vice Fund. “It’s just a cash cow. The free cash flow on this business is just tremendous.”