A Few Tobacco Stocks to Consider Buying: Altria Group, Inc. (MO), Reynolds American, Inc. (RAI)

Earnings per share have also been driven in part by share buybacks, another form of returning free cash flow to shareholders. The total amount of shares bought back by the company in 2012 amounted to 15 million, which were worth some $625 million. Reynolds has also been constantly expanding margins through reducing headcount. A 35% reduction in headcount has occurred since 2004. The balance sheet meanwhile remains incredibly strong. Moreover, Reynolds managed to reduce long-term debt by 44% since 2008.

Conclusion

I find that the tobacco industry is an ideal place to place money aside if you are weary of the macro economy and looking for predictable returns. While they can be expensive, there are strong alternatives. Lorillard Inc. (NYSE:LO) , for example, trades at only a respective 14.4x and 13.2x past and forward earnings. It is forecasted for 8.6% annual EPS growth over the next fiv years. During the past five years, it achieved a premium growth rate of 11% keeping it ahead of the competition. It is therefore surprising that the stock’s multiples are at such a discount to those of peers. When you factor in the fact that this stock has 60% less volatility than the broader market and an incredible 5.2% dividend yield, Lorillard comes ahead of the pack. It is, in my view, one of those rare combinations of low downside and high upside.

The article A Few Tobacco Stocks to Consider Buying originally appeared on Fool.com and is written by David Gould.

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