I know that my view on the tobacco sector is not shared by everyone but that is why - despite never being a tobacco smoker - I have held (and made money investing in) shares in the sector. As I noted about my position in Imperial Brands (IMB) back in late March HERE, ‘the story here remains attractive’ – observing the modest rating and high dividend yield as well as ‘the remaining major tobacco sector names also getting involved with cannabis’. However Imperial Brands and British American Tobacco (BATS) shares are both down over 5% in recent days, losing some of their recent gains. What is going on?
It has been reported that ‘the Biden administration is considering whether to cap nicotine levels in cigarettes’. No surprise there at a certain level as it is part of the ongoing evolution of the tobacco industry in America (and many other countries including our own) over the past fifty years. Anyhow, there is plenty of uncertainty whether it just means less nicotine per se or also some broader policy shifts including a ban of menthol cigarettes. So there are going to be a lot of questions on this, especially at the quarterly update from Philip Morris with its global exposure and real focus on including the revolutionary IQOS product (which easily by 2030 - in my opinion - is going to be a lot more important than the Marlboro brand for it).
This ongoing shift away from cigarettes per se is certainly going to be part of sharper US regulation (the Food and Drug Administration/'FDA'), hence some of the rumours. Meanwhile, I do notice from the US unit of BAT that ‘many consumers wrongly believe that a cigarette very low in nicotine content is lower in risk than traditional cigarettes, a misconception that poses a major hurdle in determining proposed rulemaking for low nicotine cigarettes’. Frankly though there are going to be some changes...and this is why all the tobacco names are already changing.
Much earlier this year I observed at a big Imperial Brands meeting that ‘Next Generation Products’ were going to be its big 2020s focus. Absolutely, given all the above. Tobacco sector investing is certainly not for everyone but I still believe Imperial Brands stock is cheap and - even after the latest move - it is still showing a gain from the February lows. In short, still one to keep holding if you already do or consider buying if you don’t (irrespective if you are a smoker or - like me - not).
Filed under: Imperial Brands, BATS, Gunsynd, Chris Akers, Biome, Panther Metals, System1 Group
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