Tobacco industry might not be the most loved industry in America, however the stock such as Altria Group Inc (NYSE:MO), Reynolds American, Inc. (NYSE:RAI) and Lorillard Inc. (NYSE:LO). Jim Cramer was discussing tobacco stocks on CNBC‘s “Mad Money” and he said that this is the correct time to have tobacco stocks in spite of the opposition the industry faces.
“You may not want cigarettes anywhere near you in your day to day life. But believe me right now, you absolutely want them in your portfolio” Cramer said.
He emphasized on the point that the tobacco companies such as Altria Group Inc (NYSE:MO), Reynolds American, Inc. (NYSE:RAI) and Lorillard Inc. (NYSE:LO) and he feels that the whole group is on an upside. He also mentioned about the merger talks between the #2 tobacco company in America, Reynolds American, Inc. (NYSE:RAI) and Lorillard Inc. (NYSE:LO). Looks like the talks are in final stages and we might hear an announcement soon. Since the announcement has been made the stocks of both companies have been rallying.
Currently Altria Group Inc (NYSE:MO) controls above 50% of the tobacco market in the USA while Reynolds American, Inc. (NYSE:RAI) has 27% of the market and Lorillard Inc. (NYSE:LO) has 15% and if the merger happens there will be two major players in the US tobacco market, Altria and the company formed by Reynolds and Lorillard merger. However the overall market share for the new merged company might be a little less as the companies would need to sell some of the brands for the merger to happen.
“If the deal goes through, that will be positive for all the companies in the tobacco industry” Cramer said how these mergers help the industry by consolidation.
Cramer cited the example of the domestic airlines and mentioned how the stocks have been soaring for over 18 months now after the consolidation. He also gave examples of chip making industry, beer industry and how these industries have been benefitted by consolidation. He said that Altria Group Inc (NYSE:MO) and Reynolds American, Inc. (NYSE:RAI) would be benefitted by the fact that tobacco companies can’t advertise on television, because no one can actually take their customers away by advertising. However the overall consumer base is shrinking by the day and that might be an area of concern.
He also spoke about the e-cigarettes and how Lorillard Inc. (NYSE:LO)’s blu brand has a healthy market share in that segment. Though the market for e-cigarettes is not huge, it might be the way people smoke in the future and hence the company has an edge there.
“If you simply want to enjoy the benefits of consolidation without the complications of an actual merger, there is nothing wrong with “buy the big dog”, Altria, the best brand and a very healthy business” Cramer stated.