Friday, May 20, 2016

Recent Buy: Reynolds American Inc.

I'm like a kid on Christmas morning this week. My budget finalized, I sold a stock, and I obtained my revenue from SA published articles all in the same week. That means there is moolah (money?) to invest in all that I wish (if only that were really the case)! Therefore I have purchased another holding for the portfolio.

Today's purchase was in Reynolds American Inc. This is the holding company that brought Camel, Newports, and Pall Mall to your friendly neighborhood gas station and Walmart (WMT). They are even responsible for American Spirit (if you smoked that natural stuff). I may no longer be a smoker but I once was and my brand of choice was Camel. Without trying to sound too big on advertisements and plugs, the reason that I chose Camel over the other brands was for the taste and the price in relation to it. The taste was just perfect for the budget that I was looking to buy my smokes for. On the other hand, when I had very little available for smokes, I would reach for Pall Malls. It was no different for all of the friends I hung out with that smoked. Everyone preferred Camels or Pall Malls - not a single one smoked Marlboro. Maybe this was a case of you are who you hang around with but all the same, it all just seemed to depend on how much cash you had at the time of purchase.

I guess what I'm trying to get at is that these two brands alone made up the bag or pocket of almost everyone I met who smoked. After taking a look at the numbers released in both Reynolds American Inc.'s 10-K and Phillip Morris's (Marlboro), it appeared that I was not far off. The two makers comprise almost 100% of the market of cigarettes in the United States. The big difference between the two was that Reynolds American had a far greater profit margin (just above 55%) and their P/E has been on the rise rather than falling. Pair this with a better PEG ratio (1.73 for RAI) and a more comfortable D/E ratio and you've got yourself a better bet in the tobacco industry.

I may not smoke anymore but because I have in the past (a little more than I would care to admit), I have a great background for the product and the market they are trying to appeal to. This gives me a pretty good level of confidence that this will be a good long term investment. Granted, it's definitely not the healthiest or society friendly stock but I believe the company still has quite a future ahead of it and that makes it a good buy for the portfolio. Final compilation below:

Purchased 14 shares of Reynolds American Inc. (RAI) on 5/20/2016 @49.71/share
**This adds $23.52 in annual dividends to the Dividend Scythe

4 comments:

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