3 Tobacco Stocks Heating Up: Altria Group, Philip Morris, and Vector Group

Contrary to popular opinion, the tobacco industry is not dead. Though people no longer smoke cigarettes as frequently as they did back in the 50s, 60s, and 70s, many tobacco companies are still thriving.

Even if you have a strong moral compass, you owe it to yourself to consider investing in the top tobacco companies. The bottom line is no one forces consumers to buy and smoke cigarettes. Furthermore, many leading tobacco companies are making strides in developing alternatives to tobacco-based products with reduced risk.

Let's take a closer look at three of the top tobacco stocks starting to heat up as 2021 kicks off: Altria Group (MO), Phillip Morris (PM), and Vector Group (VGR).

Altria Group (MO)

MO is the leading player in the United States tobacco market. Examples of MO brands include Marlboro and Parliament. MO is expanding its product scope beyond cigarettes, moving toward items in the smokeless category. In fact, MO's revenues from its oral product category have steadily increased as popularity skyrockets for tobacco-oriented products with reduced risk. For example, MO's IQOS reduced risk devices are selling like hotcakes thanks to the licensing contract with Philip Morris (PM).

MO is currently trading around $42, a mere $5 away from its 52-week high of $47.23. However, MO still has a jaw-droppingly low forward P/E ratio of 8.89. This figure will likely increase in due time as more investors warm up to the prospect of investing in tobacco companies such as MO. MO's fourth-quarter sales surpassed expectations though its profits missed the Street's mark. The company recently announced a $2 billion stock buyback program. In other words, the pandemic has helped MO, boosting fourth-quarter sales by 5%, likely because people are worried, nervous, and depressed now more than any other time in the last century. This overarching fear bodes well for MO as its products are designed to calm the nerves.

Add in the fact that MO has an investment in the cannabis industry through Cronos Group (CRON), and investors have even more to look forward to. If you are still on the fence about whether MO is a solid investment, look no further than its POWR Ratings. MO has an A grade in the Quality component along with a B grade in the Growth component. You can learn more about how MO fares in the Momentum, Value, Sentiment, and Stability components by clicking here. MO is ranked 6th out of more than ten stocks in the Tobacco industry. You can find other top stocks in the Tobacco industry by clicking here.

Philip Morris (PM)

PM makes and sells cigarettes along with other tobacco products outside of the United States. PM is also implementing reduced-risk products to expand its horizons. As noted above, PM has partnered with MO to sell its IQOS reduced risk device to the masses.

PM has a fairly low forward P/E ratio of 13.56, meaning it is likely undervalued at its current trading price of $80. Analysts have established an average price target of $92.53 for PM, indicating a potential upside of 17%. PM has an A grade in the POWR Ratings Quality component and a B grade in the Stability component. You can find out more about how PM grades out in the Momentum, Sentiment, Value, and Growth components by clicking here.

Out of the 11 stocks in the Tobacco industry, PM is ranked 5th. It is clear that PM is one of the most intriguing value stocks, especially now that its heated tobacco unit volume is enjoying nearly 20% growth. Once the pandemic winds down, PM management predicts an 8% rise in adjusted EPS and a 5% uptick in net revenue.

Vector Group (VGR)

VGR makes and sells cigarettes as well as nicotine-free and low nicotine products. VGR has solid POWR Ratings with B grades in the Quality, Value, and Growth components. If you are curious about how VGR fares in the remainder of the POWR Rating components, click here. 

Of the 11 publicly traded companies in the Tobacco industry, VGR is ranked third. VGR is less than $2 away from its 52-week high of $13.86, yet its forward P/E ratio is still a reasonable 14.38. 

VGR's business tentacles stretch to real estate via subsidiaries as well as information processing systems. In short, VGR is your opportunity to invest in a diverse business with exposure to tobacco and other industries.

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MO shares were trading at $41.93 per share on Wednesday afternoon, up $0.36 (+0.87%). Year-to-date, MO has gained 2.27%, versus a 2.53% rise in the benchmark S&P 500 index during the same period.

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.

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