Russia's Smoking Ban: Will It Snuff Out Big Tobacco Profits?
Charles Sizemore | Mar 08, 2013 04:30AM ET
Life hasn’t gotten any easier for Big Tobacco. Last week, Russia became the latest country to impose major new restrictions on smoking in public places. Starting in June, Russians will no longer be able to smoke in restaurants, and cigarette advertising will be banned.
I have my doubts as to how strictly the ban will be enforced, but the fact remains that one of the friendliest countries towards public smoking just got a lot chillier. According to the At Current Prices Tobacco is a No-Go , and I want to repeat that sentiment today. Domestic Big Tobacco stocks such as Altria (MO) and Lorillard (LO) trade at a slight premium to the S&P 500 earnings multiple. That simply should not be. These are companies in terminal, albeit gentle, decline.
And Philip Morris International, the “growth stock” of the bunch, trades at a significant premium. Philip Morris trades for 18 times trailing earnings and yields 3.7%. That is simply not a high enough dividend yield to make this stock worthwhile given the better alternatives out there. “Boring” tech stocks like Intel (INTC) and Microsoft (MSFT) both offer higher dividend yields, as do most midstream master limited partnerships.
If Big Tobacco has a substantial price correction, then I might be interested again. But for now, I consider these stocks as toxic as the cigarettes they sell.
Disclosures: Sizemore Capital is long MSFT and INTC.
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