Why I’m Betting on the Tobacco Industry
Recent FDA regulations and marijuana investments may turn the tables for big tobacco
Disclaimer: I purchased a call option in BTI earlier today, and the purpose of this article is to explain why I think this was a good decision. I disclaim that I may profit if the price of BTI increases over the next few months. This is not meant as investment advice, but simply my prediction on the industry’s future.
For more than a year tobacco stocks have been on a rather steady decline, highlighting shifting consumer trends from combustible tobacco toward nicotine vaping. Juul labs, a leading e-cigarette manufacturer, has raised more than three quarters of a billion dollars, and other competitors have received similarly large funding rounds.
If you follow the US stock market, you may have noticed recent fluctuations in tobacco stocks. This past week, for example, the FDA declared minors’ vaping an “epidemic,” resulting in a rapid increase of all major tobacco stocks by a few percentage points.
Across the board, tobacco stocks have been performing rather poorly these past few months. Altria Group has been growing steadily since the end of April, but that is the exception. Philip Morris, British American Tobacco, and Vector Group, for example, have been declining since April. Many are trading within pennies of their 52-week low, signaling the lowest prices some of these companies have traded at in years (British American Tobacco hasn’t been below its current price since 2011).
I am betting that British American Tobacco has bottomed out, and it will now begin a steady rise. If the FDA proceeds with their plan to start prohibiting selling vapes due to their overwhelming use by minors, I believe this will greatly benefit alternate “nicotine-delivery” companies, particularly through combustible and non-combustible tobacco.
Additionally, I see it highly likely that larger tobacco companies will begin announcing plans to penetrate the rising legal marijuana industry. This could cause a major rebound, even to pre-2008 stock prices.
I will write a followup when I choose to exercise or sell my call contract, and I will report on the validity of my prediction. Follow my Medium page for more financial predictions, articles on international economics, and even culture pieces.