As the tobacco market stock starts discounting the end of the Fed's QE2 starting with June, continuing with probable spending cuts and severity programs in Washington, investors should start revolving money from main momentum stocks such as Netflix or Open Table in comparisons with companies with firm controlling business and good distribution furnishes. So, it is important to add that Lorillard is the third largest U.S. tobacco company.
Approximately one month ago, an autonomous report about menthol cigarettes by the Tobacco Products Scientific Advisory Committee declared that menthol tobacco flavor can harm the smokers by tempting more and more people to start smoking and even making it harder to quit it but fell short of suggesting an definite ban on menthol cigarettes to the U.S. Food and Drug Administration (FDA).
That same day, shares of Lorillard (LO), which gains an important fragment of revenues from its leading brand of menthol cigarettes Newport, surged by more than 11 percent closing at $87.11. Promotes by Goldman Sachs (GS) and UBS AG (UBSN) quickly followed and the stock is now trading about the $100 mark.
Researchers reviewed five positive catalysts for LO in addition to some uptrend technical indicators:
In general, this tobacco company generates approximately 86% percent of its income only from premium smoking brands, like Newport, Kent, True. So, Newport is the leading brand for menthol cigarettes and holds the number two spot for the overall American cigarettes market chasing only to the Marlboro brand. The focal point on strong brands has permitted LO to apply a vigorous pricing policy and its controlling margins of 43% are the highest among big tobacco companies.
Even after its recent sudden increase, the stock only sells at a PEG ratio of 1.25 - the ratio between current P/E and projected earning growth in 2011. In comparison with Altria and RAI which are more expensive with PEG ratio of 1.4 and 2.5, respectively.
Healthy free money flow allows for both dividend payments and shares counter trade. At present, LO has a 70% payout ratio and a dividend provide of 5.26%. Both are in line with the tobacco industry's operations.
In conclusion, LO has been a darling among professional investors with institutional ownership at more than 99%. Retail investors beware though as the stock could become inconstant if money managers decide to drop large blocks of shares onto the tobacco market.
via Articles of Cigarette-Deals.com
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