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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (4097)	5/18/1998 10:42:00 PM
From: James Clarke	Read Replies (4) \| Respond to of 78523

I'm surprised at how little we are hearing on this thread about tobaccos. I can't think of anything more contrarian except Indonesia, and I'm in that already. I have not bought tobacco yet, though I have made money on them in the past. I posted this on another thread, and thought it might be worth posting here: There are several ways to play the tobacco industry, all of which are very contrarian, and each of which look like "value" in their own way. 1. RJR - bankruptcy risk is very real. Yield of 7.4%. Plus you've got the non-tobacco value of Nabisco worth four dollars more than RN's stock price. If it sounds too good to be true, it very well may be. I would not touch RJR. You've got much more risk than Philip Morris because of the balance sheet, but since Camel's business gets killed by Marlboro, especially internationally, you get none of the long term reward. 2. MO - one of the greatest money machines in the world - the key is they have the foreign tobacco business which RJR lacks. We're talking Coke vs. Pepsi. 4.4% yield? Very tempting. The stock would go to 50 if things in Washington calm down. But what about bankruptcy? It is a risk, and I would not call it remote. I cannot quantify the liability as long as politicians and lawyers are running the show, so I am going to be conservative on this. But at 30-33 I would almost have to bite. If I decide to buy tobacco, I am going to buy the best company in the industry. 3. UST - a different segment of the industry (smokeless) and one which is not being directly targeted by the politicians...yet. Lousy management, but the kind of business that my dog could make money out of. 6% yield with a balance sheet and a unique Washington risk profile that make bankruptcy unlikely. 4. LTR - Loews. Say their tobacco business were worth zero. The stock is worth about $110-120. It trades at $89. Same story as RN, without the leverage. This puppy's not going bankrupt anytime soon, but I would not invest in this industry for an upside of 20% (whatever the settlement, LTR is still going to trade at a big tobacco discount). Plus, I want the tobacco economics if I am going to take this kind of risk. LTR's tobacco business is a small part of an investment in the company (except when you're talking risk). I own no tobacco stocks, so don't misunderstand me. But if these go much lower, I probably will start buying. Then believe me, you will see tobacco stocks on this thread regularly! If I am going to be paying $20 a pack for cigarrettes, the dividends will be helpful. JJC

To: Paul Senior who wrote (4097)	5/18/1998 11:57:00 PM
From: jeffbas	Read Replies (1) \| Respond to of 78523

I would be VERY careful of TAIT. It appears cheap. However, the worst investment I ever made turned into an "excessive inventory" problem. With inventory equal to more than a year's sales, this company is very exposed to ASP reduction driven inventory writeoffs of quite some size.