Is Universal Now the Best International Tobacco Company?

According to the sales figures of tobacco companies including Philip Morris International (NYSE: PM  ) , the consumption of cigarettes around the world is declining. However, according to the World Health Organization, the consumption of tobacco products is actually increasing globally. This is why I believe that Universal Corporation  (NYSE: UVV  ) could now be the best tobacco investment on the market.

A contrarian company
Unlike other tobacco companies, Universal does not manufacture cigarettes. The company actually grows the tobacco used by cigarette producers. What's more, unlike Philip Morris' management, which is pessimistic about the global cigarette market outlook, Universal's management is priming itself for growth.

In particular, Universal has recently embarked on a program to increase the company's tobacco leaf and production capacity within Mozambique. Similarly, other smaller-scale projects are currently in development in several other countries to enhance local processing and leaf services. All in all, the company plans to spend $50 million increasing its processing capacity this year.

Meanwhile, Philip Morris International's management recently came out and said that investors might have to get used to lower returns from the company.

Lower returns
Philip Morris' management made this announcement at the Morgan Stanley Global Consumer Conference last week. In particular, the company revealed that 2014 was going to be a tough year of low growth and high investment, with the number of cigarettes shipped by Philip Morris expected to continue declining through 2014 but recover slightly during 2015.

However, with Philip Morris' volume of cigarettes shipped down 5.7% during the third quarter alone, led by a 2.5% decline in the total volume of Marlboro cigarettes shipped, another year of declining cigarette sales will put the company in a tough position for recovery.

These revelations by Philip Morris' management come just after the company's international peer, Japan Tobacco, announced plans to ax 15% of its domestic work force and close four factories as the demand for cigarettes wanes. The company also plans to close 15 of its 25 sales offices within Japan.

Philip Morris and British American Tobacco fight but Universal wins
However, there is also an interesting trend emerging here. You see, while Philip Morris is reporting lower sales, its Anglo-American peer, British American Tobacco (ADR)  (NYSEMKT: BTI  ) , has been busy driving sales growth. This is where Universal starts to look more appealing when compared to Philip Morris.

British American Tobacco has been driving sales of its 'global drive brands' priced lower than Philip Morris' iconic Marlboro brand and designed to steal market share.

British American's four global drive brands are Dunhill, Kent, Lucky Strike, and Pall Mall, and together their sales have expanded 62% since 2002. These four brands represent 24% of the company's total volume. Unlike Philip Morris, which is highly dependent on Marlboro, British American is diversified.

These 'tobacco wars' between British American and Philip Morris do not affect Universal. As long as tobacco is being sold, Universal is going to make a profit and this is why the company now looks to be one of the market's best tobacco plays.

Not interested in Tobacco's juicy yields?
Having said all of that, there is still the question of ethics when debating tobacco investment. To some, the affect that smoking has on people's health can put them off investing in the sector. Still, tobacco stocks offer some of the most impressive dividend yields available on the market but as I say, investing in the sector is not for everyone. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

 


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  • Report this Comment On December 11, 2013, at 2:34 PM, brucer51 wrote:

    In what ethical universe does this particular news item reside?

    I should to refrain from my self imposed astonishment but let's be clear here: Tobacco consumption causes totally preventable health problems. It sentences people to a substandard. less productive life. The health costs impact us in the US (from a last decade study--$96 billion in direct healthcare costs and $97 billion in lost productivity.) and to a greater degree in developing counties by adding incredible cost impacts on society.

    How can we as an investment community suggest that investment in any tobacco related enterprise can be justified?

  • Report this Comment On January 07, 2014, at 12:20 AM, felixthecat777 wrote:

    bruce51 writes that we canot justify investing in a product which causes health issues? Then what about a fast food chain which is killing people at a much higher rate and makes them completely unproductive . I bet there are many more health related issues to being over weight not to mention those who may not even be over weight but are a hearty attack waiting to happen from eating that junk. I used to war with a man at work over smoking until one day he comes to me with this newspaper article stating that ones life is cut short far more from being over weight than smoking does

  • Report this Comment On January 09, 2014, at 12:48 AM, brucer51 wrote:

    Sure thing Felix. Let's answer your question. What about fast food companies?

    They at least attempt to mitigate the problems with their junk products with more healthy alternatives. The allure of tasty fat and salt laden food makes it hard for consumers to switch to the salad/fruit/etc. options the often offer. And obesity results from a combination of factors beyond the food such as exercise, portion control, stress and yes cigarette smoking.

    I do not see the tobacco industry attempting to do anything to mitigate the impact of tobacco. And they mastered the art of junk science to stave off public action to curtail their deadly products. Perhaps they should make amends and fund all the hospices needed for their customers?

    And what gives with your profile, man? It has no other activity except to respond to my piddling comment? Are you a shill created by the masterminds at Altria to troll the social media space to refute negative comments about their dangerous products?

    That might be the reason you do not discourse on the topic of cigarettes but provide only a smoke screen of something like fast food that one might consider more deadly. You almost had me there with that red herring...hah!

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