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.

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 Wednesday, May 22, 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.

British American Tobacco PLC (ADR)’s Value Grade

Value Grade:

British American Tobacco p.l.c is a consumer-centric, multi-category consumer goods company that provides tobacco and nicotine products. Its segments include the United States, Asia Pacific Middle East and Africa, Americas and Europe. The Company’s product categories include Vapor, Tobacco Heating Products (THPs), Modern Oral, Traditional Oral and Combustible cigarettes. Vapor products are handheld, battery-powered devices that heat a liquid (called an e-liquid) to produce an inhalable aerosol, known as vapor. THPs are a new category of tobacco product designed to heat rather than burn tobacco. Modern Oral products are smoke-free oral nicotine products called nicotine pouches, designed for use in the mouth. Traditional oral products include snus and snuff. Its brands include Vuse, glo, Velo, Grizzly, Dunhill, Kent, Lucky Strike, Pall Mall, Rothmans, Newport, Natural American Spirit, Camel, Vogue, Viceroy, Kool, Peter Stuyvesant, Craven A, State Express 555 and Shuang Xi.

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.

British American Tobacco PLC (ADR) has a Value Score of 85, which is considered to be undervalued.

When you look at British American Tobacco PLC (ADR)’s price-to-sales ratio at 2.02 compared to the industry median at 1.35, this company has a higher price relative to revenue compared to its peers. This could make British American Tobacco PLC (ADR)’s stock less attractive for value investors.

Now, let’s assess British American Tobacco PLC (ADR)’s EV/EBITDA ratio, also known as enterprise multiple. At 6.8, when compared to the industry median of 7.9, the company may be considered undervalued 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. British American Tobacco PLC (ADR)’s shareholder yield is higher than its industry median ratio of 4.85%. 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. British American Tobacco PLC (ADR)’s price-to-book ratio is lower than its industry median ratio of 1.11. This could make British American Tobacco PLC (ADR) more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at British American Tobacco PLC (ADR)’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. British American Tobacco PLC (ADR)’s price-to-free-cash-flow ratio is lower than its industry median ratio of 40.74. This could make British American Tobacco PLC (ADR) more attractive because the lower P/FCF ratio indicates that British American Tobacco PLC (ADR) 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.

Imperial Brands PLC (ADR)’s Value Grade

Value Grade:

Imperial Brands PLC is a fast-moving consumer goods company. The Company operates through two businesses: Tobacco & NGP and Distribution. The Tobacco & NGP business manufactures, markets, and sells tobacco and next-generation products (NGP) and tobacco and NGP-related products, including sales to (but not by) the Distribution business. The Distribution business distributes tobacco and NGP products for tobacco and NGP product manufacturers, including Imperial Brands, as well as a range of non-tobacco and NGP products and services. Its segments include Europe, Americas, Africa, Asia, Australasia and Central and Eastern Europe (AAACE) and Distribution. It offers tobacco products and smoking accessories, such as Golden Virginia fine-cut tobacco, Rizla rolling paper, Backwoods cigars, oral nicotine offerings in the Nordics such as Skruf.

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.

Imperial Brands PLC (ADR) has a Value Score of 84, which is considered to be undervalued.

Imperial Brands PLC (ADR)’s price-earnings ratio is 8.5 compared to the industry median at 12.2. This means that it has a lower price relative to its earnings compared to its peers. This makes Imperial Brands PLC (ADR) more attractive for value investors.

Imperial Brands PLC (ADR)’s price-to-book ratio is lower than its peers. This could make Imperial Brands PLC (ADR) more attractive for value investors when compared to the industry median at 1.11.

You can read more about Imperial Brands PLC (ADR)’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.

Altria Group Inc’s Value Grade

Value Grade:

Altria Group, Inc. is a holding company, which provides a portfolio of tobacco products for United States tobacco consumers aged 21+. Its segments include smokeable products, oral tobacco products, and all other. The smokeable products segment includes of combustible cigarettes manufactured and sold by Philip Morris USA Inc. (PM USA), and machine-made large cigars and pipe tobacco manufactured and sold by Middleton. The oral tobacco products segment consists of moist smokeless tobacco (MST) and snus products manufactured and sold by U.S. Smokeless Tobacco Company LLC (USSTC), and oral nicotine pouches manufactured and sold by Helix Innovations LLC (Helix). The oral tobacco products segment includes the premium brands, Copenhagen and Skoal, and Red Seal. It also includes on! oral nicotine pouches. The Company’s e-vapor products are marketed by NJOY, LLC (NJOY), a wholly owned subsidiary of the Company. Its tobacco subsidiaries sell their tobacco products principally to wholesalers.

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.

Altria Group Inc has a Value Score of 62, which is considered to be undervalued.

Altria Group Inc’s price-earnings ratio is 9.7 compared to the industry median at 12.2. This means that it has a lower price relative to its earnings compared to its peers. This makes Altria Group Inc more attractive for value investors.

You can read more about Altria 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.

• British American Tobacco PLC (ADR) stock has a Value Grade of A.
• Imperial Brands PLC (ADR) stock has a Value Grade of A.
• Altria 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 Wednesday, May 22
• Why Ispire Technology Inc’s (ISPR) Stock Is Up 6.22%
• Why Ispire Technology Inc’s (ISPR) Stock Is Up 10.43%
• 3 Undervalued Tobacco Stocks for Wednesday, May 15

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.