Is it time to look again at British American Tobacco?
The second-biggest tobacco company is facing challenges if it wants another crack at market dominance.
There is no doubt that the market for tobacco products is in transition with the outlook for cigarette replacement devices in flux, but BTI (traded on NYSE) is still the second biggest global tobacco company (by revenue.)
Over the past year the stock has halved in value, but with the acquisition of Reynolds American and a sharp eye towards bringing smoke-free products online, BTI may have a brighter future than its rivals. There is also the possibility of looking towards the potential of the marijuana market even though British American CFO Ben Stevens said that at present they were studying the market and currently had no plans to either build a business nor acquire going concerns in the sector. But don’t forget that BTI is one of the big three in the tobacco space and even with the downturn in the market this stock pays a dividend that currently yields 8.2% annually.
BTI’s revenue still continues to rise and its operating profits are expanding, but with the stock trading at a discount of around 50% to where it was trading a year ago. So it might not be unreasonable to take a position in British American Tobacco to benefit from the dividend while waiting to see if it can regain its footing and once again rise to previous levels. With a 4% annual loss in sales market wide, it can be said that for tobacco companies to continue to be viable they will have to embrace the new technologies like e-cigarettes and the potential of the new marijuana market as well.
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