Clear The Air News Tobacco Blog Rotating Header Image

Tobacco stocks could damage your wealth

No smoking sign © Thinkstock

Smoking bans are becoming more widespread

What are the 20 best stocks listed in the UK? It’s the kind of thing you want to know before this year’s deadline for choosing your individual savings account (Isa) holdings, isn’t it? It’s good news, then, that Société Générale’s Andrew Lapthorne has made a stab at figuring out the answer, by compiling a list of the most consistent shares over the past 20 years.

These he counts as the stocks that you could have bought in any month since 1993 and been certain to make a positive absolute return, had you held them for five years. To find them, he took all the stocks with a long enough trading history – 329 qualified – and ranked them every month on a five-year total return basis. All those with any negative returns were removed.

A mere 20 remained. Of these, the top ten were: Domino’s Pizza, Centamin Egypt, BHP Billiton, Genus, Imperial Tobacco, Synergy Health, Dechra Pharmaceuticals, SABMiller, BG Group and Ultra Electronics Holdings.

That these companies have done so well in the past 20 years is no guarantee they will do anything useful at all in the next five, admits Lapthorne. But the fact that “they have delivered consistent share price performance over such a long period must indicate some form of competitive advantage”.

That makes sense – and a good few of the companies will surely make their holders nice returns.

Domino’s is an excellent example of a well-managed company that has tapped into rising consumer demand for convenience food – as is Greggs, which comes in at number 19 on the list.

Genus is a market leader and good pharmaceutical companies should be finding themselves in a demographic sweet spot.

But one bothers me. It is Imperial Tobacco.

Tobacco companies have had an extraordinary amount of bad publicity over the past 50-odd years. They’ve been in and out of court; they’ve paid out enormous settlements; the countries in which they operate have spent billions trying to prevent citizens from buying their products; and they’ve been severely limited in terms of how they can market, advertise and manage their brands.

Yet their shares have continued to be top performers. Look at how their businesses operate and you can glimpse the reason why. Big tobacco companies have very strong brands. There is never any new competition. After all, who’s going to put up the money to enter such a vilified and low-growth sector when they aren’t even allowed to promote their products?

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>