Electronics Cigarettes: What To Watch, What to Ignore

The Fool heads out to Vegas to check out the 2014 International Consumer Electronics Show. With more than 3200 exhibitors, including 88% of the top retailers in consumer electronics, the CES is the place to be to see what's coming up in tech.

Think e-cigarettes are hurting big tobacco? True, standard cigarette sales are down, but a lot of tobacco companies are simply acquiring the e-cigarette sellers to make up for the loss.

There were countless trends emerging from CES 2014 this year, but the real question for investors is how to capitalize on these revolutionary opportunities. Fortunately for you, David Gardner has an idea or two on how to invest in these new emerging technologies -- and how you can profit. Get in on the ground floor now by clicking here.

A full transcript follows the video.

Austin Smith: Hey Fools, Austin Smith, here from the floor of CES 2014, here to talk about an interesting trend that we saw in the digital health section of the CES floor, and that was electronic cigarettes.

Very interesting to see this industry, notoriously associated with poor health, making its way very rapidly into better health, using this bridge of electronic cigarettes. Now, investors are very interested in this topic, going forward.

The way that we see it, there's a couple different avenues to look at. There's a lot of companies on the back end, maybe doing the picks and shovels, some of the technology behind e-cigarettes, but many of them are pink sheet stocks, and very, very speculative and risky as a result.

Therefore, looking to the major tobacco companies, there's different ways that this impacts their business. Of course, many people see it as a negative, detracting sales from typical cigarette sales, but the reality is many of these tobacco companies are acquiring a lot of these e-cigarette manufacturers and using it to supplement declining typical tobacco sales.

The good news is, these e-cigarettes typically come with EBITDA margins about twice as high as typical tobacco products, and they operate on very much a razor and blade model.

One of the interesting things to watch are the smaller e-cigarette companies that these major tobacco players are buying. Lorillard  (NYSE: LO  ) recently picked up blu eCigs, and there's Philip Morris  (NYSE: PM  ) , Altria  (NYSE: MO  ) , Reynolds American  (NYSE: RAI  ) ; a lot of companies in this space.

This is really going to come down to who has the best distribution first, because most of the products that we're seeing here are virtually identical in function. What's really going to matter is which tobacco companies are picking up which manufacturers and getting those products out there as fast as possible.

Remember, these big tobacco companies are the ones with the distribution relationships in place; Lorillard's acquisition of blu eCigs, maybe about 12-18 months old at this point ... already blu eCigs is the number two seller, by most measures, of electronic cigarettes. Getting out there first, getting your products into these distribution channels, we see being much more important and much more significant than the actual technology in the electronic cigarettes themselves.

Thank you very much for tuning in. For all of your CES coverage, make sure to head over to Fool.com.


Read/Post Comments (6) | Recommend This Article (3)

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  • Report this Comment On January 16, 2014, at 2:55 PM, IToldYa wrote:

    I find it interesting that you and several other disregard the technology in the ecig market in favor of distribution when the numbers show that the products that BT are distributing do not convert repeat users in the numbers that the higher tech devices do. If they continue on this path using antiquated technology all they are doing is creating a user base that is going to transition over to advance tech upon exposure. They are in essence potentially executing a plan of their own demise. Meanwhile they are investing ton of money in reduced risk new manufacturing that is still tobacco based as evidence by Phillip Morris putting a new reduced risk $500M facility in Italy that is non ecig related.

    I think ST the stocks are good. LT there are cracks that will be exploited by new startups with advanced tech. Sure they can purchase these new companies but the price will be significant by then. A lot more than the Blu/LO buyout.

    My 2 cents.

  • Report this Comment On January 16, 2014, at 6:58 PM, Burstedbladder wrote:

    The tobacco companies will do and say whatever they can to try and discredit eCigs. The new eCigs are becoming more popular and healthier for the consumers, and therefor, they no longer have to spend a fortune on these big cigarette companies cancer causing products.

    A friend of mine switched to eCigs and is no longer hacking and coughing all the time like he use to when smoking tobacco cigs.

    goooooo eCigs....

  • Report this Comment On January 17, 2014, at 9:19 AM, savenow wrote:

    Funny he did not mention mCig when focusing on how to get in on the e-cig boom and profits. mCig is publicly traded and up almost 300% in the last quarter. In addition, their e-cig and related products focus on the the ever expanding herbal market. This is a huge competitive advantage for them in the future compared to the other large players who just won't be able to go that route for years to come. mCig may get acquired as well, but with that business focus it will most likely scare the big boys away - herbal additions are just not "PC" yet. Sure there is risk with a small company, but none of us would be worried about that to much if we are reading this article to begin with.

  • Report this Comment On January 17, 2014, at 12:02 PM, TexasBob86 wrote:

    Watch for E-cigs to replace medical atomizers in some applications. Some prescription and nonprescription drugs can be delivered via vapor.

    Within a year or two they'll be in use for everything from headaches to COPD medications.

  • Report this Comment On January 17, 2014, at 12:36 PM, ftfan35 wrote:

    @savenow, mCig isn't really a good option (their sales are only in the 10's of thousands). The only pure play e-cig stock that is credible which can turn a profit and is working on other tech which includes several patents pending is Vapor Corp. They are also in the process of listing on the NASDAQ. They are very tiny right now compared to market leaders but they are getting a solid foothold and expanding revenue.

  • Report this Comment On January 17, 2014, at 2:36 PM, IToldYa wrote:

    Personally I think Vapor Corp. is so far removed from the pulse of the market that they are simply a get it/getout stock. Ride them while the subject of ecigs is hot but as soon as a real company emerges in the space... dump them. What they unveiled at CES with their fingerprint ecig shows just how shallow their foresight into the market is. They aren't developing any in house tech that is actually product related. Really no one is developing in house tech in the US except for a small group out of L.A. and on in Maine. The rest are content to let China do the Dev and rebrand inc;luding Vapor Corp. Nothing long term there.

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