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Tobacco Vanguard – Incorporating Sin Stock Fans @TobaccoVanguard on x XXX followers
Created: 2025-07-25 08:13:32 UTC
TOBACCO VANGUARD, est. 1977 Not for all and sundry. Editorial
THE VALUATION DIVIDE By M. Reuven
Next week, British American Tobacco, Altria and Japan Tobacco will publish their quarterly accounts. Their announcements will not move markets. Their forecasts will not feature on cable news. Their results, however, will reveal something of considerable significance. These companies will report profits. They will report margins. They will report capital returned to shareholders. And in all three cases, they will do so at a valuation far below the prevailing standard in modern equity markets.
The wider market has taken leave of such things. As of this writing, the Shiller P/E ratio of the S&P XXX stands at XXXX. This figure, also known as the cyclically adjusted price-to-earnings ratio, represents the current price of the index relative to its average real earnings over the previous ten years. It has only been higher twice before. The first was in 1929. The second was in 2000. Neither ended well.
The ordinary trailing price-to-earnings ratio, based on reported profits over the past twelve months, now stands between XX and 30, depending on adjustments. This means that investors are paying more than $XX for each dollar of earnings, at a time when real interest rates are positive and government bonds yield more than equities. The dividend yield of the S&P XXX is now approximately XXX percent, the lowest sustained level in over a century outside wartime conditions or periods of speculative mania.
By any historical measure, these are not prices paid for stable earnings or reliable cash flows. They are prices paid for belief. And the object of that belief, in the present moment, is artificial intelligence.
There is a curious symmetry to this. In 2000, the market priced in the internet. In 2021, it priced in the vaccine. Today, it prices in the algorithm. In each case, the promise of a new epoch has produced the same result: a market with narrow breadth, extreme valuation, and a complete indifference to cash return. Companies are now rewarded not for what they earn, but for what they may yet become. It is not clear when this became a sound principle of investment.
The tobacco sector offers a contrast that is too obvious to be ignored. British American Tobacco, based on its most recent earnings, trades on a price-to-earnings multiple of XXXX. Imperial Brands is priced lower still, at XXX. Both companies generate stable earnings from established markets, return most of their free cash flow to shareholders, and have raised their dividends over time. Neither requires favourable monetary policy, expansionary fiscal assumptions, or the rollout of new technology to justify its present valuation. They are old businesses. But they are solvent businesses.
This is not to say that tobacco equities are without risk. Volumes are declining. Regulation is intensifying. Public hostility remains high. Yet these factors are not new. They are known quantities, already reflected in price. That is the crucial distinction. The risks in tobacco are disclosed and discounted. The risks in the wider market are unspoken and ignored.
There is also a moral question, though it is seldom addressed honestly. It is considered unseemly to invest in tobacco, despite its legality, its disclosure obligations, and its continued capacity to fund pensions and sovereign wealth funds. It is not, however, considered unseemly to invest in narrative-driven equities with no profit and no purpose, provided they trade under the correct thematic banner. The language of ESG has replaced the language of solvency. This is a cultural shift, not a financial one.
One may protest that tobacco firms do not grow. This is largely true. But it misses the point. A business that returns eight percent in cash annually need not grow at all to be a viable long-term holding. Especially when the broader market promises two to three percent in total, once the arithmetic of reversion is applied to current valuations. Even this assumes that earnings will grow into their present multiples. That assumption is now routine. It is also unexamined.
A market priced at nearly forty times real earnings cannot sustain a single interest rate shock, a single geopolitical reversal, or a single quarter of disappointment without severe consequence. This is not pessimism. It is simply what has happened, each time, without exception.
There are few safe harbours in equity markets. The defensive sectors are either overbid or overregulated. The utilities are already crowded. The consumer staples are priced at a premium. Energy is volatile. Pharmaceuticals face political scrutiny. Among the few sectors left with tangible earnings, high margins, and undervalued shares, tobacco stands nearly alone.
That fact will not make it fashionable. But it may make it profitable. #TobaccoVanguard #Valuation #CAPE #SP500 #EquityMarkets #ImperialBrands #BritishAmericanTobacco #Altria #DividendStocks #ValueInvesting #MarketBubble #Earnings #Pensions #FinancialRealism #IncomeInvesting #ContrarianView #LongTermReturns #MonetaryPolicy #AIMania #ShillerPE $IMB $MO $BATS $BTI $JTI
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