Why are tobacco stocks performing so well?

Philip Morris and Altria are performing well as investors look for dividends in an inflationary environment.

Tobacco’s pivot to vaping has yet to work

Tech stocks have taken a beating in 2022, driven in part by fears of rising interest rates.

Where have investors gone for refuge? Some have piled funds into very non-tech assets:

Tobacco stocks

While the tech-heavy Nasdaq index is down 13% this year, some smoky names are doing well, per The Wall Street Journal:

  • Philip Morris International (which sells Marlboro cigarettes outside the US) is up 14%
  • Altria (which sells Marlboros in the US) is up 6%
  • British American Tobacco is up 20%

These assets have lagged in recent years. Why? Asset managers that control $12T+ have pledged, on ethical grounds, to not invest in tobacco firms.

Why the turnaround?

Tobacco firms, peddling addictive wares, generate predictable cash flows. This lights up investor interest because it means juicy dividends that hedge against higher inflation.

Per WSJ, Philip Morris and Altria will need to make progress in “less-risky” products (AKA e-cigarettes, vaping) to drive real gains.

It’s much easier said than done: Altria backed one-time e-cigarette darling Juul, only to see the startup mired in lawsuits for marketing to minors.

Longer term, regulators will decide the fate of the tobacco industry. The current uptick may very well burn out.

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