Tobacky

So MO, UST, et al are up big today with a favorable legal settlement. It's a good opportunity for me to give my view of tobacco. I believe tobacco stocks are EXCELLENT long term investments, although right here they are a tad pricey. I plan to add to my long term positions in these stocks on any pullbacks.

This is my qualitative big picture thinking. First let's leave aside the moral objections to investing in tobacco. If you have a moral objection to tobacco stocks, I respect it, and I wouldn't dream of trying to change it. My position is based on not having a moral problem with these companies.

Everyone knows these are wonderful businesses from a fundamental viewpoint, high free cash flow, addictive product, many smokers still worldwide, lots of room for Altria et al to grow in China, etc. I think most people would agree what keeps the price down is the liability risk. My view is that the settlement with the states' attorneys general did a lot to mitigate that risk in the future. Why? Because (money quote) it made the states and several large law firms partners in these companies by giving them a claim on their future cash flow. Heck, some states have even securitized this future cash flow by selling bonds against it. I think there is a lot of legal talent, both in state governments and in large law firms, people that write legislation and litigate it in court, that will not want to kill the goose that laid the golden egg, as it were. Thus, I feel pretty confident that further attempts to extort (perjorative word, I know, but that's my view) money from these companies will be fought tooth and nail by their partners in state governments and in private legal practice.

Tobacco. I don't buy the product, but I own the stocks.