Tobacco companies getting vaporized?

[Spekulatius]

i have been looking a cheapishly looking tobacco stocks a while ago and bought a starter position and then started to do some more research and thing this business is on the cusp of a significant change from e-cigarettes. It seems that products from industry newcomers like Juul gain significant market share especially with younger folks. This makes sense to me since starters will likely not be bound by existing habits and chose the product that appears to work best. I have little doubt that smoking vaporware is much less harmful than tobacco and it certainly is less annoying to others.

 

My guess is that adoption of e-cigs could rapidly increase and destroy the other tradional tobacco business. the fact that a newcomer like Juul can gain almost 50% market share means that the incumbent tobacco companies don’t have that much of an advantage and market shares will be redistributed, but moreover, it is not likely that the e-cig business will have the same obscene profit margins than the tobacco products.

 

So get the last puff out of tobacco stocks and hope that these companies die faster than their  :P

[benchmark]

i have been looking a cheapishly looking tobacco stocks a while ago and bought a starter position and then started to do some more research and thing this business is on the cusp of a significant change from e-cigarettes. It seems that products from industry newcomers like Juul gain significant market share especially with younger folks. This makes sense to me since starters will likely not be bound by existing habits and chose the product that appears to work best. I have little doubt that smoking vaporware is much less harmful than tobacco and it certainly is less annoying to others.

 

My guess is that adoption of e-cigs could rapidly increase and destroy the other tradional tobacco business. the fact that a newcomer like Juul can gain almost 50% market share means that the incumbent tobacco companies don’t have that much of an advantage and market shares will be redistributed, but moreover, it is not likely that the e-cig business will have the same obscene profit margins than the tobacco products.

 

So get the last puff out of tobacco stocks and hope that these companies die faster than their  :P

 

I think that these traditional tobacco companies have a lot more staying power than you think --> they have an addictive product. In addition, most of them have diversified into other business.

[Spekulatius]

i have been looking a cheapishly looking tobacco stocks a while ago and bought a starter position and then started to do some more research and thing this business is on the cusp of a significant change from e-cigarettes. It seems that products from industry newcomers like Juul gain significant market share especially with younger folks. This makes sense to me since starters will likely not be bound by existing habits and chose the product that appears to work best. I have little doubt that smoking vaporware is much less harmful than tobacco and it certainly is less annoying to others.

 

My guess is that adoption of e-cigs could rapidly increase and destroy the other tradional tobacco business. the fact that a newcomer like Juul can gain almost 50% market share means that the incumbent tobacco companies don’t have that much of an advantage and market shares will be redistributed, but moreover, it is not likely that the e-cig business will have the same obscene profit margins than the tobacco products.

 

So get the last puff out of tobacco stocks and hope that these companies die faster than their  :P

 

I think that these traditional tobacco companies have a lot more staying power than you think --> they have an addictive product. In addition, most of them have diversified into other business.

 

Yes, they is true - their product is addictive, but now you can replace it with another addictive product that works just as well and is less damaging to your health and more socially acceptable.

 

I compare it to LED lights replacing lightbulbs. For about a hundred years, lighting companies made bulbs and gas discharge lamps (Halogene etc) with very nice profit margins and relatively stable market shares. Then came the LED - a superior product and old market shares count for nothing and the profit margins went to hell.

 

The comparison of LED vs tobacco is problematic in several ways, but I think there are a lot of similarities too. The fact that an upstart in the e-cig business (JUUL) can get almost 50% market shares and beat the marketing machines or Imperial brands and BTI (and maybe MO) tells you already something.

[txvalue]

What is preventing the bigger incumbents from just buying up the most promising new entrants?

[Sharad]

i have been looking a cheapishly looking tobacco stocks a while ago and bought a starter position and then started to do some more research and thing this business is on the cusp of a significant change from e-cigarettes. It seems that products from industry newcomers like Juul gain significant market share especially with younger folks. This makes sense to me since starters will likely not be bound by existing habits and chose the product that appears to work best. I have little doubt that smoking vaporware is much less harmful than tobacco and it certainly is less annoying to others.

 

My guess is that adoption of e-cigs could rapidly increase and destroy the other tradional tobacco business. the fact that a newcomer like Juul can gain almost 50% market share means that the incumbent tobacco companies don’t have that much of an advantage and market shares will be redistributed, but moreover, it is not likely that the e-cig business will have the same obscene profit margins than the tobacco products.

 

So get the last puff out of tobacco stocks and hope that these companies die faster than their  :P

 

I think that these traditional tobacco companies have a lot more staying power than you think --> they have an addictive product. In addition, most of them have diversified into other business.

 

Yes, they is true - their product is addictive, but now you can replace it with another addictive product that works just as well and is less damaging to your health and more socially acceptable.

 

I compare it to LED lights replacing lightbulbs. For about a hundred years, lighting companies made bulbs and gas discharge lamps (Halogene etc) with very nice profit margins and relatively stable market shares. Then came the LED - a superior product and old market shares count for nothing and the profit margins went to hell.

 

The comparison of LED vs tobacco is problematic in several ways, but I think there are a lot of similarities too. The fact that an upstart in the e-cig business (JUUL) can get almost 50% market shares and beat the marketing machines or Imperial brands and BTI (and maybe MO) tells you already something.

 

Is MO allowed to sell IQOS in the US? My impression is they are waiting for FDA approval before selling in the US.

 

If one wants to see how their products will do, one simply has to see PM's performance with IQOS in Japan, where adoption is ahead of the U.S.

 

https://www.wsj.com/articles/fda-panel-set-to-advise-on-risks-of-smokeless-tobacco-product-1516884403

 

"In Japan—where e-cigarette sales are heavily restricted—IQOS has lured enough smokers since launching nationwide in the summer of 2016 to account for about 12% of the overall cigarette market, according to Philip Morris."

 

 

 

I think IQOS will have huge advantages over all other competitors once FDA approves some language, any of the language, PM/MO presented for approval. And we know that the baseline is already their weakest statement, which was agreed upon by the FDA advisory board:

 

https://www.cnbc.com/2018/01/25/philip-morris-stock-falls-as-committee-reviews-iqos-claims.html

 

"Members voted unanimously (aside from one abstention) against PMI's claim that its heat-not-burn tobacco product cuts the risk of tobacco-related diseases. The panel also rejected a claim that iQOS is less risky than continuing to smoke cigarettes in a 5-4 vote.

 

One claim the committee voted in favor of was that iQOS reduces the body's exposure to harmful or potentially harmful chemicals. However, it voted against the idea that reductions in exposure are reasonably likely to translate to a measurable and substantial reduction in morbidity and or mortality."

 

The 5-4 vote by the advisory committee on the "middle ground" statement that iQos is less risky than continuing to smoke cigarettes is currently at a 5-4 vote. This isn't a cut-and-dry decision: there is a decent chance (I'd put it at 60%) that the FDA approves this statement.

 

 

 

Finally, the FDA needs to balance the health of current smokers with the prospects of curbing future smokers. The latest news roiling tobacco is a result of discussions on regulating flavored and menthol cigarettes, which I'm unsure MO even really sells; BTI on the other hand would get hammered on an outright ban of menthol. The FDA has also proposed reducing nicotine content in cigarettes to reduce its addictive properties, but it has also acknowledged it needs to weigh this with the potential for current smokers inhaling more cigarettes (and therefore more carcinogens) once such changes are made.

 

If I would venture to guess, I would believe that flavored tobacco would be banned, menthol content reduced, nicotine levels halved, and iQos products would be approved with the statement that they are less risky than cigarettes. This would not necessarily warrant a huge decline in tobacco related stocks over the long term.

 

Long PM, MO and BTI.

 

P.S. I believe big tobacco is already committing R&D to start looking at the medical properties of tobacco, to diversify away from cigarettes. This is one reason why PM/MO is embracing FDA regulation, and taking a much more cordial approach to the government than 15-20 years ago.