In addition to reporting another solid quarter on Wednesday, tobacco maker Reynolds American
Bears essentially ran roughshod over the market from 2000 to 2002, yet shares of Reynolds American appreciated more than 50%. The S&P 500 was down approximately 40% over this same time period. I am certainly not suggesting that we are about to enter a sustained downturn in the market. I do think, though, that vice stocks such as tobacco, gaming, etc., offer a great hedge in down markets. They haven't fared too poorly in good markets, either. The Vice Fund
For its Q2, Reynolds did report a decrease in its adjusted EPS of 9.8% compared to the prior year. But Reynolds has positioned itself for a strong finish to 2007, seeing "growth [from] key brands" and making "full-year productivity gains of $75-to-$100 million." The company is expecting earnings to kick up in the second half of the year and has raised the lower end of its earnings guidance by $0.05 per share.
The company has experienced volume declines similar to those of competitor Altria
Company management now expects a 9% to 12% improvement in full-year earnings. The consistency of the company's earnings growth, along with an impressive dividend yield, make this stock worthy of consideration for Fools who are concerned about a market correction -- or those just looking to add some stability to their portfolio.
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