E-Cigarettes Are Smoking Hot – Four Ways To Invest In Them

E-Cigarettes Are Smoking Hot – Four Ways To Invest In Them


When 57-year-old Tom Holloway turned on his e-cigarette, he got a lot more than nicotine.  The device exploded in his mouth, knocking out two teeth and leaving him with severe burns.  ”The best analogy is like it was trying to hold a bottle rocket in your mouth when it went off,” said Joseph Parker, division chief for the North Bay Fire Department in a CBS news report.

If e-cigarette companies can correct these problems and investors can get past these isolated incidents, they will find that sales of e-cigarettes are also exploding.  Euromonitor forecasts the retail sales value of e-cigarettes worldwide for 2013 at $2.5 billion.  Wells Fargo estimates that figure will top $10 billion by 2017 and Bloomberg Industries projects that sales will exceed those of traditional cigarettes by 2047.

The popularity of these new devices can be attributed to a younger generation. According to a recent Centers for Disease Control report, schools across the country are reporting an increase in e-cigarette usage, and school administrators are struggling to create policies that curb their usage or outright ban them.  With a lack of regulation on sales or advertising, e-cigarettes have been marketed as a safer alternative to tobacco products and come in flavors such as chocolate, caramel, and strawberry.

Electronic Cigarette Model

Electronic Cigarette Model (Photo credit: planetc1)

In an effort to standardize safety, it is likely that stricter regulation of e-cigarettes is coming.  A crackdown will force many e-cigarette companies out of business as they lack the resources to abide by new rules, leaving the market to big tobacco.  As a result, the following companies have the cash flow to drive e-cigarette volume and revenue growth.

With the acquisition of Blu eCigs in 2012 Lorillard(LO) became the first big tobacco company to enter the e-cigarette market.  Recently the company also acquired SKYCIG, a premium brand of e-cigarettes based in the UK.  This gives Lorillard a global presence and a leading 49% market share in the e-cigarette market.  The stock currently has a dividend yield of 4.2% and this year the company announced a $1 billion stock repurchase plan.

Phillip Morris International (PM) had taken a wait and see attitude on e-cigarettes, but on November 20th management proclaimed it “the single greatest opportunity for us” and announced its intention to enter the e-cigarette market during the second half of 2014.  The company has increased its dividend 104% and repurchased 25% of its outstanding shares since its spinoff from Altria in 2008.  Phillip Morris will continue to be aggressive in its return of capital to shareholders in 2014, committing approximately $6 billion to share repurchases and another $6 billion to dividend payments.  The stock has a dividend yield of 4.3%.

British American Tobacco (BTI) trades as American Depository Receipts (ADR’s) on the NYSE.  BTI launched its Vype e-cigarette in the UK.  It’s currently available online and is expanding to retail outlets.  The company will repurchase £1.5 billion of its own shares in 2013.  BTI also owns a 42% stake in Reynolds American (RAI) that is valued at $11.5 billion.  Reynolds launched its VUSE  e-cigarette in Colorado over the summer and is expanding across the United States.  BTI has a dividend yield of 2.7%.

Altria (MO) launched its MarkTen e-cigarette in Indiana in August and plans to expand distributionto Arizona in December.  Altria plans to retire $1 billion in stock in 2013 through the third quarter of 2014 and announced a 9% dividend increase this year (5.2% yield).

Andrew Goodman is the Chief Investment Officer at CIC Wealth

Andrew Goodman, Contributor

I cover stocks, finance & athletes – independently & interchangeably

Source – http://www.forbes.com/sites/agoodman/2013/12/05/e-cigarettes-are-smoking-hot-4-ways-to-approach-them/


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