Who Are the Big Tobacco Electronic Cigarette Stocks? MO, LO & RAI

There is a new "study" out that electronic cigarettes, or so-called e-cigarettes or e-cigs, may contain a comparable level of carcinogens to regular cigarettes; but that's unlikely to stop big tobacco stocks like Altria Group Inc (NYSE: MO), Lorillard Inc (NYSE: LO) and Reynolds American, Inc (NYSE: RAI) who are rushing to get their products established in the sector. Specifically, a report released this week  in France's National Consumer Institute magazine claims that many e-cigarettes (approximately 3 in 10 e-cigarettes) actually contain "a significant quantity of carcinogenic molecules" than had been reported in earlier studies while the Wall Street Journal has recently reported that the FDA has been in discussions with the e-cigarette industry about a possible online-sales ban of the product. The Journal also noted estimates that US electronic cigarette sales will hit the $1 billion mark this year while Wells Fargo Securities' Bonnie Herzog predicts sales could hit $10 billion in five years as smokers switch from tobacco to battery-operated nicotine-vaporizing technology. Moreover, electronic cigarettes don't face the same sort of restrictions as their smoke emitting counterparts – meaning they are bound to catch on with the country's 45 million or so smokers given the increasingly draconian smoking laws.

Big Tobacco Stocks With Electronic Cigarette Products

Here is a look and a quick update about what big tobacco is doing in the electronic cigarette arena:

Altria Group. With brands like Marlboro, Copenhagen, Skoal and Black & Mild, Altria Group's  Philip Morris USA, U.S. Smokeless Tobacco Company and John Middleton have leading positions in the cigarette, smokeless tobacco and large machine-made cigar categories plus the company has a substantial position in the alcohol business with Ste. Michelle Wine Estates and an economic interest in SABMiller plc​. While declining cigarette volumes and rising excise taxes aren't hurting the bottom line yet, the Altria Group announced in its April earnings report that its Nu Mark subsidiary would introduce an electronic cigarette in the second half of this year. The e-cigarettes were scheduled to debut this month under the MarkTen brand name at retail stores in Indiana. According to media reports, the e-cigarette will be manufactured in China by a contract manufacturer, but the liquid that produces the vapor will be made in America by an affiliate of Nu Mark while the product itself will be sold in menthol and "classic" tobacco flavors. It was expected to sell for about $9.50 at retail.

Lorillard Inc. The third-biggest US tobacco company, Lorillard was founded in 1760, which makes it the oldest US tobacco company and one of the oldest companies in America. Newport is Lorillard Inc's flagship premium cigarette brand and its both the top selling menthol and second largest selling cigarette in the US. in April 2012, Lorillard Inc acquired blu eCigs, a leading electronic cigarette company in the US, for $135 million. This acquisition marked big tobacco's first foray into electronic cigarettes. A quick look at Lorillard Inc's most recent earnings report issued in late July reveals that net sales increased $73 million, or 4.2%, to $1.804 billion namely due to a net sales increase of $49 million for electronic cigarettes to $57 million for an over 40% retail market share. In other words, it looks like getting in early by buying an e-cigarette maker has paid off for Lorillard.

Reynolds American. The second-biggest US tobacco maker, Reynolds American brands include many of the nation's 10 best-selling cigarettes and it's the parent company of R.J. Reynolds Tobacco Company; American Snuff Company, LLC; Santa Fe Natural Tobacco Company, Inc.; Niconovum USA, Inc.; Niconovum AB; and R.J. Reynolds Vapor Company. Reynolds American has tried to differentiate its Vuse product brand from existing electronic cigarettes on the market while trying to do so in a cost-effective manner so that the product can be manufactured in America, but still compete with e-cigarettes being made in China. To address the problem or rather complaints that the quality of the vapor declines during the life of most e-cig cartridges, Reynolds American uses microchips in both the power unit and the cartridge of Vuse to ensure that the "last puff is as good as the first." Right now, Reynolds American is focused on expanding Vuse in Colorado, but the company aims to be a national leader in electronic cigarettes. Hence, management noted that its latest guidance reflects the investments being made to expand Vuse e-cigarettes around the country.

Share Performance: Big Tobacco Stocks MO, LO and RAI

Here is a quick look at the share performance of all three big tobacco stocks:

As you can see from the above chart, smoking may not be a healthy habit but owning a tobacco stock (regardless of electronic cigarettes) has been healthy for most investor portfolios over the long term.