Investors can’t give up smoking profits

Ashley Milne-Tyte Jan 31, 2007

KAI RYSSDAL: They smell bad and they’re bad for you, but cigarettes seem to be a pretty good investment. Altria confirmed today it’s spinning off Kraft Foods. Since it made the announcement last fall, shares have risen 10 percent. Ashley Milne-Tyte has the story from New York.

ASHLEY MILNE-TYTE: In case you thought cigarettes and their makers were becoming a thing of the past . . .

RAYMOND MATHIS: That’s not really very close to the truth.

Raymond Mathis is an analyst with Standard & Poors:

MATHIS: The fact of the matter is that, internationally, there is a lot of consolidation. There are tremendous growth opportunities because there are markets throughout the world where consumption of tobacco is increasing.

Not to mention, he says, the development of new tobacco products for sale here in the U.S. Mathis says spinning off Kraft lets Altria concentrate more fully on developing its core products. Charles Norton is portfolio manager of the Vice Fund — a mutual fund that invests in alcohol, tobacco, gambling and defense. Norton says Altria is the fund’s largest holding for good reason:

CHARLES NORTON: It has a strong financial position in its balance sheet. The legal environment surrounding Altria as well as other tobacco companies has vastly improved over the past 12 months or so.

And he says, people forget that even if cigarette sales in the U.S. are declining, tobacco companies like Altria just jack up the price to make up for it. According to a Wharton Business School study, Altria is the best performing stock of the past 50 years. But don’t let the past be your guide, says Julie Fox Gorte of Calvert, which offers the nation’s largest group of socially responsible mutual funds.

JULIE FOX GORTE: And while Altria is, in fact, the darling of Wall Street right now, we could have said the same thing about Enron in 2000 and 2001. So no matter how high it’s flying right now, it doesn’t mean it can’t go back to earth tomorrow.

She says one company specializing in politically incorrect products is thriving, but socially responsible investing has not had its day.

In New York, I’m Ashley Milne-Tyte for Marketplace.

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