Despite a decline in the use of cigarettes, tobacco companies continue to generate massive amounts of income and free cashflow for their investors. Profits for the largest tobacco companies are steadily increasing with technological advancements into e-cigarette and vaping. However, many investors are hesitant to invest in tobacco companies given the harmful nature of the products that they sell. An acclaimed business consultant and corporate investor in the field, Isaac Toussie explained that while these concerns have validity, there are various arguments available that one could adopt and still feel comfortable investing in tobacco companies.

Tobacco is not a healthy product for the general population. Cigarette smoking can lead to various diseases ranging from emphysema to cancer One argument for still investing in tobacco companies is that the products have extensive warning labels and the regulations and education programs that engulf the industry protect any individuals that don’t consent to the risks associated with smoking. The federal government along with state governments have passed multiple legislative reforms to stop minors from purchasing cigarettes. This has come with restrictions on advertisements and heightened taxes. Education programs on the usage of cigarettes is widespread. The increased amount of education, legislation and reform all restrict individuals who are unaware of the risks from smoking.

A second line of argument Toussie explained is that thousands of retailers sell tobacco products, without any backlash from investors. Retail chains like Walmart and Costco earn millions each year from tobacco and tobacco related products. It’s counter-intuitive to refuse to buy the stock of the maker of tobacco, but endorse an investment in the sellers of tobacco. Furthermore, retail chains throughout the country profit off of the sale of other potentially hazardous materials. For example, Walmart stores across the country market and sell firearms. The public health concerns targeted at tobacco companies, it could be argued, should not stop investors especially given the fact that those same concerns do not hinder investments in many other prominent stocks.

A third line of argument is that public health arguments are made against tobacco companies, while other manufacturers engaged in parallel behaviors do not sustain much backlash. Alcohol causes an estimated 95,000 deaths a year in the United States alone. Alcohol addiction ruins the lives of countless individuals. However, investors generally do not hesitate to invest in alcohol companies as Michelob, Anheuser Busch and Molson Coors are very popular high PE stocks. Just because a product is potentially dangerous doesn’t necessarily mean that investors should shy away from purchasing that company’s stock. A fourth argument lies in freedom of individual choice. The decriminalization of marijuana in many states only furthers that idea: consumers should have the ability to choose the products that they can purchase. This is not an ethical issue for some investors, rather a conscious choice on the part of the consumer to engage in a particular behavior.

In any and all events, Imperial Brands and British American Tobacco have low PEs, high free cashflows and respectable debt levels. Japan Tobacco is not profitable enough and Phillip Morris and Altria have very high PEs and high debt. These fundamentals provide the space for investors who adopt some of the arguments above and feel comfortable investing in this space.

This article is presented for informational purposes only and should not be relied upon as financial or other advice.