Cigarettes Are Bad, Cigarette Stocks Aren't

By Joey Fundora | December 02, 2011 AAA

Cigarettes are just about the worst thing a human can put in their body. They cause cancer, make you smell bad, and have been banned in almost all establishments. Cigarette companies seem to always be exposed to lawsuits and face significant hurdles due to several reasons, including the social stigma associated with smoking and even the increased taxes that burden their consumers. And despite all this, many cigarette stocks are rallying to new all-time highs.
There are a host of reasons as to why this could be occurring, but regardless of why, it can't be denied that it is occurring sector wide. This usually points to institutional accumulation because it is occurring across several peers. Altria Group, Inc. (NYSE:MO) is one of the stocks in this group that has been performing well. It cleared a significant resistance level near $27 in early October and settled into a base-on-base consolidation. It traded sideways in a $1 range at a time when the market was extremely volatile, and the stock finally cleared the range a few sessions ago. MO is likely due for some profit taking, but overall, the price action is pointing at higher prices.

Philip Morris International Inc. (NYSE:PM) is another stock in this sector that is trading at all-time highs. PM also cleared a significant level in October as it broke above the $72 level. It experienced some volatility and ultimately chopped around for a few weeks, but was finally able to break free in late November. Much like MO, PM is much extended and likely due to pull back a little. However, the price action looks pretty clean and it appears that PM is back in an uptrend. (For related reading, see The Psychology Of Support And Resistance Zones.)

While also extended, Reynolds American Inc. (NYSE:RAI) is another cigarette stock that appears to be in a clear uptrend. RAI broke above a base in early October and settled into a flag-type consolidation. It cleared the flag in November and has been working higher since. It is likely due for some profit taking, and the $40 level would be an area to monitor for likely support. There is nothing but blue skies above, since RAI is also at all-time highs.

Lorillard, Inc. (NYSE:LO) is one stock in the group that is not hitting new all-time highs yet. It cleared its base in October like its peers, but it pulled back a little deeper and has yet to emerge from the secondary consolidation. However, it is starting to show some strength, and could make an attempt at its all-time highs soon, especially if the markets continue to show strength.

The Bottom Line
Regular readers know that I love when stocks in the same sector act in unison. This typically reveals either some sort of institutional activity, or at worst it confirms the story for the entire group rather than simply an individual catalyst. The cigarette stocks have been acting well for a few months, and are in long-term uptrends, as revealed by their weekly charts. I would not advocate smoking or chasing these stocks right now, they do appear that they are headed higher in the intermediate term. So while cigarettes are definitely bad for you, apparently cigarette stocks are not. (For related reading, see Point And Figure Charting Basics.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Charts courtesy of stockcharts.com

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

You May Also Like

Related Analysis
  1. Is Natural Gas About to Tank?
    Chart Advisor

    Is Natural Gas About to Tank?

  2. Bear of the Day: Movado (MOV) - Bear of the Day
    Stock Analysis

    Bear of the Day: Movado (MOV) - Bear of the Day

  3. Housing Data Broadly Mixed - Ahead of Wall Street
    Stock Analysis

    Housing Data Broadly Mixed - Ahead of Wall Street

  4. German Business Confidence Surfaces - Ahead of Wall Street
    Stock Analysis

    German Business Confidence Surfaces - Ahead of Wall Street

  5. Does Home Depot Still Have Tailwinds?
    Stock Analysis

    Does Home Depot Still Have Tailwinds?

Trading Center