Economic turmoil continues to reduce the number of firms that are able to successfully navigate increasing unemployment rates and plummeting personal wealth. Falling housing and asset prices take a serious bite out of consumers' willingness to spend. According to some polls, the only companies standing tall are those that sell alcohol, candy and cigarettes.

IN PICTURES: Top 10 Forex Trading Rules

However, the landscape for "sin stocks" has changed significantly. Miller is now a part of South African-based SABMiller, while Anheuser-Busch (NYSE:BUD) is now a part of Anheuser-Busch InBev (OTC:AHBIF) after being acquired by InBev. In addition, Confectionery giant Wrigley recently left the publicly-traded realm after a generous buyout from privately-held Mars, Inc. (Can your principles make you richer or poorer? Find out if it pays pick your portfolio based on ethics in Socially Responsible Investing Vs. Sin Stocks.)

Plentiful options abound when it comes to smoking, though. Altria Group (NYSE:MO), which owned Miller until 2002 and currently holds a sizable stake in SABMiller, Reynolds American (NYSE:RAI), known best for its Camel brand and Philip Morris (NYSE:PM) are smoking the competition amongst the "sin stocks". The continuous demand for cigars, cigarettes and smokeless tobacco - regardless of the state of the economy - has allowed these stocks to outperform the market (as measured by the S&P 500) over the past few years. Altria's underlying performance has been masked by the sale of businesses and the spinoff of Philip Morris and food-maker Kraft (NYSE:KFT). But Philip Morris has held up well in the difficult economic environment.

Bank On Philip Morris
Shares of Philip Morris have lagged both the market and the shares of the players listed above. Considering it has the brightest growth prospects, this just doesn't make sense. Full-year results released earlier this month demonstrated its potential, with net revenues increasing a steady 6.6% to $25.7 billion, exclusive of currency fluctuations. Operating income grew double digits to $10.4 billion, for an impressive operating margin of 40%. Diluted 2008 earnings rose 16% to $3.32 per share and, although management is calling for 2009 earnings of $2.85 to $3.00 per share, the stronger dollar is projected to dent reported results by 80 cents. Excluding currency impacts, management reckons the bottom line will grow between 10% and 14%. (Find out how to put this important component of equity analysis to work for you in Analyzing Operating Margins.)

Bottom Line
According to Thomson Financial Networks, most analysts expect Philip Morris sales to decline 8.1% to $23.6 billion for the coming year. However, this could change depending on how foreign exchange rates perform throughout the year. The same goes for Reynolds American, as analysts are calling for a 4% drop in sales and a modest 5% fall in earnings. Only Altria is projected to grow sales - by 6.8% for the coming year - but its earnings are expected to drop 4%. Yet, Philip Morris has the best prospects, given its international bias. It estimates that Marlboro is the leading premium cigarette brand in developed and emerging international markets, where it has dominant market share in countries such as Russia, Romania and Mexico. It also has a number of mid- and low-price alternatives to fill in the gaps and sees huge potential in China, where the opening of two production facilities in August will lead to expansion in the region.

Related Articles
  1. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  2. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  3. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  4. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  5. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  9. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  10. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  1. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!