{"id":36665,"date":"2013-03-06T16:09:45","date_gmt":"2013-03-06T21:09:45","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=36665"},"modified":"2013-03-06T16:09:45","modified_gmt":"2013-03-06T21:09:45","slug":"the-russian-smoking-ban-will-it-snuff-out-big-tobacco-profits","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/03\/06\/the-russian-smoking-ban-will-it-snuff-out-big-tobacco-profits\/","title":{"rendered":"The Russian Smoking Ban: Will It Snuff Out Big Tobacco Profits?"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

Life hasn\u2019t gotten any easier for Big Tobacco.\u00a0 Last week, Russia became the latest country to impose major new restrictions on smoking in public places.\u00a0 Starting in June, Russians will no longer be able to smoke in restaurants, and cigarette advertising will be banned.<\/p>\n

I have my doubts as to how strictly the ban will be enforced, but the fact remains that one of the friendliest countries towards public smoking just got a lot chillier.\u00a0 According to the Wall Street Journal<\/i><\/a>, 44 million Russians smoke, and they collectively account for 9% of Philip Morris International\u2019s (NYSE:$<\/span>PM<\/a>)<\/strong> profits.\u00a0 Japan Tobacco and British American Tobacco (NYSE:$<\/span>BTI<\/a>) <\/b>get 11% and 8% of their profits from Russia, respectively.<\/p>\n

Russians will not quit smoking overnight in response to the ban. That didn\u2019t happen in the United States, and it won\u2019t happen in Russia.\u00a0 It may be years before it makes a serious dent in consumption.\u00a0 But it does blow a major hole in one of the bullish arguments supporting Philip Morris International: emerging markets will not be growth markets for tobacco forever.\u00a0 As countries reach higher levels of development, the costs to the health system prompts a crackdown.<\/p>\n

We saw the same in China.\u00a0 In 2011, China banned smoking in restaurants, bars, and in several other enclosed public spaces, though it is still legal to smoke in offices. But there are now plans to ban smoking in virtually all public place, New York City style, by 2015.<\/p>\n

Again, we\u2019ll see how strictly it is enforced.\u00a0 Though China has no qualms with crushing freedoms of expression or religion, the right to light up a cigarette is one they seem to let slip.<\/p>\n

Latin America?\u00a0 Same.\u00a0 Brazil, Argentina, Chile, and Peru all have bans in most indoor areas, and enforcement is starting to be taken seriously.<\/p>\n

India?\u00a0 You guessed it.\u00a0 As of 2008, smoking was banned in most public places, though enforcement has been a little touch and go.<\/p>\n

By now, you should be getting the picture.\u00a0 Though enforcement varies from country to country, there is really no such thing as a \u201ctobacco friendly\u201d country anymore.\u00a0 Everywhere you look, the noose is getting tighter.<\/p>\n

Sizemore Insights<\/i> readers know that I have been a Big Tobacco fan for a long time.\u00a0 They tend to be dividend-paying powerhouses with consistent returns.\u00a0 And like other \u201cvice investments,\u201d they tend to be priced as perpetual value stocks, which has made them an outstanding performer in recent decades.<\/p>\n

But I don\u2019t advocate buying tobacco stocks at any price.\u00a0 Tobacco stocks have been a great investment precisely because they were cheap and no one wanted them.\u00a0 But you can\u2019t make that argument today.\u00a0 In fact, if anything they have become trendy.<\/p>\n

Last month, I wrote that At Current Prices Tobacco is a No-Go<\/a>, and I want to repeat that sentiment today.\u00a0 Domestic Big Tobacco stocks such as Altria (NYSE:$<\/span>MO<\/a>)<\/b> and Lorillard (NYSE:$<\/span>LO<\/a>) <\/b>trade at a slight premium to the S&P 500 earnings multiple.\u00a0 That simply should not be.\u00a0 These are companies in terminal, albeit gentle, decline.<\/p>\n

And Philip Morris International, the \u201cgrowth stock\u201d of the bunch, trades at a significant premium.\u00a0 Philip Morris trades for 18 times trailing earnings and yields 3.7%.\u00a0 That is simply not a high enough dividend yield to make this stock worthwhile given the better alternatives out there.\u00a0 \u201cBoring\u201d tech stocks like Intel (Nasdaq:$<\/span>INTC<\/a>)<\/b> and Microsoft (Nasdaq:$<\/span>MSFT<\/a>) <\/b>both offer higher dividend yields, as do most midstream master limited partnerships.<\/p>\n

If Big Tobacco has a substantial price correction, then I might be interested again.\u00a0 But for now, I consider these stocks as toxic as the cigarettes they sell.<\/p>\n

Disclosures: Sizemore Capital is long MSFT and INTC.<\/p>\n

SUBSCRIBE\u00a0<\/a><\/strong>to\u00a0Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

The post The Russian Smoking Ban: Will It Snuff Out Big Tobacco Profits?<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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