Which factor(s) do you think most contributed to the upward re-rating of tobacco stocks in 2024? From my perspective, the numbers and narrative have been remarkably consistent over the past few years. Therefore, the only catalyst I can think of is a macroeconomic shift that drives investors to seek defensive qualities during uncertain times. I'd be interested to hear your thoughts, especially since the re-rating will negatively impact the effectiveness of buybacks going forward, as I believe you've touched on in the past.
As always, there is such a large mix of potential factors that it's impossible to pinpoint the exact 'why' for the re-rating, but I can lay out a few thoughts nonetheless.
You are correct. In the grand scheme of things, despite all the surprises, good and bad, the numbers and narrative for the industry have remained remarkably consistent. So why the change? Perhaps participants in the broad market have developed more conviction toward the numbers and narrative. Possibly, due to a myriad of geopolitical uncertainties, capital has been sunk into tobacco/nicotine, as it is viewed as resilient relative to so many other industries. Part of it may very well be the anticipation of lower interest rates over the medium term, and participants seeking yield view the tradeoffs provided by the tobacco and nicotine industry to be more attractive relative to other assets. There is likely a good mix of reasons. Still, I feel confident in saying whatever the causes, it is not exclusively the 'next-gen' story because just as PMI has 'performed,' so has a company heavily focused on combustibles performance: Imperial Brands. As I frequently touch on, I would much prefer to see widespread views become more pessimistic, driving down the prices of related equities so that share repurchases become more potent. I suppose such a view is only shared by those who view their stakes as actual business ownership, with long intended holding periods, and are not simply trying to make a quick buck by riding short-term trends.
Hi Devin,
Which factor(s) do you think most contributed to the upward re-rating of tobacco stocks in 2024? From my perspective, the numbers and narrative have been remarkably consistent over the past few years. Therefore, the only catalyst I can think of is a macroeconomic shift that drives investors to seek defensive qualities during uncertain times. I'd be interested to hear your thoughts, especially since the re-rating will negatively impact the effectiveness of buybacks going forward, as I believe you've touched on in the past.
Hi Tom,
As always, there is such a large mix of potential factors that it's impossible to pinpoint the exact 'why' for the re-rating, but I can lay out a few thoughts nonetheless.
You are correct. In the grand scheme of things, despite all the surprises, good and bad, the numbers and narrative for the industry have remained remarkably consistent. So why the change? Perhaps participants in the broad market have developed more conviction toward the numbers and narrative. Possibly, due to a myriad of geopolitical uncertainties, capital has been sunk into tobacco/nicotine, as it is viewed as resilient relative to so many other industries. Part of it may very well be the anticipation of lower interest rates over the medium term, and participants seeking yield view the tradeoffs provided by the tobacco and nicotine industry to be more attractive relative to other assets. There is likely a good mix of reasons. Still, I feel confident in saying whatever the causes, it is not exclusively the 'next-gen' story because just as PMI has 'performed,' so has a company heavily focused on combustibles performance: Imperial Brands. As I frequently touch on, I would much prefer to see widespread views become more pessimistic, driving down the prices of related equities so that share repurchases become more potent. I suppose such a view is only shared by those who view their stakes as actual business ownership, with long intended holding periods, and are not simply trying to make a quick buck by riding short-term trends.
I underwrite this last sentence. Every time I see BAT's share price itching higher, I feel distressed.
Great write-up, by the way :-)
Thanks, Simon
Thanks man I like your write ups
Thanks for reading and the kind words. Never hesitate to reach out if you have questions on a piece.
Thanks for your coverage on the tobacco industry! I've been interested in $BATS, and seeing coverage on lots of tobacco companies has been helpful.
Glad you find it helpful, Thomas. Never hesitate to comment here or contact me directly via DM with questions.
Thanks Devin! I appreciate it
Thanks for writing this!
Glad you enjoyed it. Thanks!