Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 3 stocks made the list for top value stocks in the Tobacco industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Latest Tobacco Stock News

Before choosing which top Tobacco stock to buy, be sure to conduct proper due diligence: analyze various financial metrics and look at historical data, public statements and news coverage.

The tobacco sub-industry of consumer non cylindrical currently has a neutral outlook. This neutral outlook is reflected in the various obstacles that the industry has been against for a long time now, the largest being legislative restrictions and declining cigarette demand. However, tobacco companies are still seeing strong international demand, and are offsetting the decline in revenues by cutting costs across the board. Tobacco companies have also offset losses in tobacco with increased revenues from e-cigarette products. The revenues of these companies are largely protected, as they are selling a highly addictive consumer products making demand inelastic. Gross margins for the industry are massive, with Phillip Morris and Altria both having gross margins over 60% in 2020. Still, the industry faces significant headwinds from US legislation who have already increased the legal age across the nation to purchase tobacco products (including e-cigarettes) to 21. Now legislation is moving to ban all flavored tobacco and e-cigarette to try and curb the explosion of teenage and young adult usage. As of July 9, 2021, the S&P Tobacco Index was up 18.4% versus a 16.5% gain for the S&P 1500 Index. In 2020, the S&P Tobacco Index was down 9.0% versus a 15.8% gain for the S&P 1500 Index.

Why Focus on Undervalued Tobacco Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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3 Undervalued Tobacco Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 3 undervalued stocks in the Tobacco industry for Friday, January 05, 2024. Let’s take a closer look at their individual scores to see how they measure up against each other and the Tobacco industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

Universal Corp’s Value Grade

Value Grade:

Universal Corporation is a global leaf tobacco supplier. The Company is a business-to-business Agri-products supplier to consumer product manufacturers, operating in over 30 countries. Through its plant-based ingredients platform, it provides a variety of value-added manufacturing processes to produce specialty vegetable- and fruit-based ingredients as well as botanical extracts and flavorings for human and pet food end markets. It operates through two segments: Tobacco Operations and Ingredients Operations. The Tobacco Operations segment activities involve contracting, procuring, processing, packing, storing, and shipping leaf tobacco for sale to, or for the account of, manufacturers of consumer tobacco products. It also provides physical and chemical product testing and smoke testing for tobacco customers. The Ingredients Operations segment provides its customers with a broad variety of plant-based ingredients for both human and pet consumption.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Universal Corp has a Value Score of 84, which is considered to be undervalued.

When you look at Universal Corp’s price-to-sales ratio at 0.61 compared to the industry median at 1.32, this company has a lower price relative to revenue compared to its peers. This could make Universal Corp’s stock more attractive for value investors.

Universal Corp’s price-earnings ratio is 13.41 compared to the industry median at 11.84. This means it has a higher share price relative to earnings compared to its peers. This could make Universal Corp less attractive for value investors.

Now, let’s assess Universal Corp’s EV/EBITDA ratio, also known as enterprise multiple. At 7.9, when compared to the industry median of 6.9, the company may be considered overvalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. Universal Corp’s shareholder yield is higher than its industry median ratio of 1.89%. Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. Universal Corp’s price-to-book ratio is lower than its industry median ratio of 1.19. This could make Universal Corp more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Universal Corp’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Universal Corp’s price-to-free-cash-flow ratio is lower than its industry median ratio of 11.04. This could make Universal Corp more attractive because the lower P/FCF ratio indicates that Universal Corp is undervalued. The P/FCF ratio metric can also be viewed over a long-term time frame to see if the company's cash flow to share price value is generally improving or worsening.

VPR Brands LP’s Value Grade

Value Grade:

VPR Brands, LP is a technology company with a focus on vaporizers and accessories for essential oils and extracts in the cannabis and hemp industry. The Company is engaged in various monetization strategies of its United States patents covering electronic cigarettes, vaporizer technologies, and related accessories. The Company designs, develops, markets, and distributes products oriented towards the cannabis markets, including the ELF and HONEYSTICK brands of vaporizers and DISSIM Lighters. The Company has several trademarks, including ELF, PHANTOM, HRB, VPOD, VAPOR X, RIPPER, and CARTDUB, among others, for which it is also engaged in licensing and various monetization strategies. The Company also designs, develops, markets, and distributes products (the HoneyStick brand of vaporizers and the Goldline cannabidiol (CBD) products) oriented toward the cannabis markets. The Company is also engaged in selling the DISSIM brand pocket lighters.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

VPR Brands LP has a Value Score of 72, which is considered to be undervalued.

VPR Brands LP’s price-earnings ratio is 3.8 compared to the industry median at 11.8. This means that it has a lower price relative to its earnings compared to its peers. This makes VPR Brands LP more attractive for value investors.

VPR Brands LP’s price-to-book ratio is lower than its peers. This could make VPR Brands LP more attractive for value investors when compared to the industry median at 1.19.

You can read more about VPR Brands LP’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

22nd Century Group Inc’s Value Grade

Value Grade:

22nd Century Group, Inc. is an agricultural biotechnology company. The Company is focused on tobacco harm reduction, reduced nicotine tobacco and improving health and wellness through plant science. It uses plant breeding technologies, including genetic engineering, gene-editing, and molecular breeding to deliver solutions for the consumer goods and pharmaceutical industries. The Company operates through a single segment named Tobacco. Its tobacco segment is engaged in contract manufacturing organization (CMO) customer contracts that consist of obligations to manufacture the customers' branded filtered cigars and cigarettes. The tobacco segment is engaged in the sale of its reduced nicotine content (RNC) cigarettes, sold under the brand name VLN, or research cigarettes sold under the brand name SPECTRUM.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

22nd Century Group Inc has a Value Score of 80, which is considered to be undervalued.

22nd Century Group Inc’s price-to-book ratio is higher than its peers. This could make 22nd Century Group Inc less attractive for value investors when compared to the industry median at 1.19.

You can read more about 22nd Century Group Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other Tobacco Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about Tobacco stocks as well as other industrys.

Choosing Which of the 3 Best Tobacco Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• Universal Corp stock has a Value Grade of A.
• VPR Brands LP stock has a Value Grade of B.
• 22nd Century Group Inc stock has a Value Grade of B.

Now that you have a bit more background about each of the 3 undervalued stocks in the Tobacco industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About Tobacco Stocks

Want to learn more about Tobacco stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 3 Undervalued Tobacco Stocks for Friday, January 05
• What You Need to Know About Altria Group Inc's Q3 Earnings
• What You Need to Know About Philip Morris International Inc.'s Q3 Earnings
• What You Need to Know About Turning Point Brands Inc's Q3 Earnings

AAII Disclaimer

We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because past, hypothetical or simulated performance is not necessarily indicative of future results. Before making an investment decision, you should consider your circumstances and whether the information on our content is applicable to your situation. This information was prepared in good faith and we accept no liability for any errors or omissions. The full disclaimer can be read here.