Tobacco Stocks Are Breaking Out

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Shares of tobacco companies started the year off mixed. Shares in two companies in particular – Reynolds American (NYSE:RAI) and Lorillard (NYSE:LO) — have performed extremely well, with shares of both companies up nearly 7 percent year to date. Shares of Philip Morris (NYSE:PM), the world’s largest tobacco producer, and Altria Group (NYSE:MO), America’s largest tobacco producer, are down for the year. However, they are recovering and it appears as if there is some momentum in the sector. Is now the time to get involved in any of these stocks?

The tobacco industry is somewhat controversial in my mind from an investment standpoint. I don’t mean to say that tobacco use is controversial, but there are certain features that characterize these companies that make them appear to be extremely appealing investments even though there is nothing especially exciting going on in the tobacco industry.

Tobacco companies don’t grow their profits very rapidly, if at all. While tobacco use is growing in a select few parts of the world — most notably in some developing countries, where smoking is a symbol of affluence — it is declining in many parts of the world, including the United States.

With that being the case, why would anyone want to invest in a tobacco company?

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