After years of battling to salvage its public image, the newest chapter in Big Tobacco’s history is finally getting investors excited again. But who is going to come out on top? Let’s find out…
Being a non-smoker, I very seldom feel the need to pay any attention to how the tobacco industry is doing.
However, when a game-changing product begins flooding the market the way electronic cigarettes have, you can’t help but be intrigued.
Some may feel otherwise, but in a very short amount of time, e-cigarettes have made smoking cool again – and I’m talking about a James Dean, Rebel Without A Cause, kind of cool.
Research has also shown that e-cigarettes offer advantages to conventional cigarettes including a myriad of health, financial, and social benefits.
Some e-products on the market believe they are healthier than cigarettes as they don’t contain the thousands of toxins that come from cigarette smoke. That’s why e-cigarette users prefer the term “vaping” as opposed to “smoking”.
E-cigarette manufacturers also claim that health complications such as diminished taste buds, mucus-filled lungs, and poor blood circulation are non-issues when consuming their products.
In terms of a financial benefit, a single e-cigarette cartridge could provide users with around 20 tobacco cigarettes’ worth of nicotine, depending on the brand. Cost-wise, a pack of 5 cartridges would set you back the same cost as roughly 2 packs of smokes.
Another argument is that technically, there is no second hand smoke risk due to the elimination of the carcinogens, so users can enjoy the nicotine without the dangerous side effects that impact the smokers and others around them.
It would seem that smoking e-cigarettes is a win-win for everybody, as there’s no smell, no ash, no fire hazard…and, where permitted, people can smoke indoors!
It seems like the only ones who aren’t happy are insurance companies because people leading healthier, smokeless lives keep premiums down.
Nonetheless, this budding market has only just begun to grow.
It’s estimated that in 2013, US smokers bought around $75 billion worth of conventional cigarettes, but only $1 billion was spent on e-cigarettes.
That’s just 1.3% of the entire industry. The growth prospects are absolutely incredible.
Three companies largely dominate the tobacco business in the US. However, there are more than 250 brands currently jockeying for position in this growing e-cigarette marketplace, according to Yahoo! Finance.
The Altria Group (NYSE:MO) is a spinoff from global giant Phillip Morris International (NYSE:PM) and has a massive $72 billion market cap.
They are followed by Reynolds American (NYSE:RAI), a $27 billion company and lastly Lorillard Inc. (NYSE:LO) a nearly $18 billion company. (Interestingly, Reynolds is said to be interested in buying rival Lorillard but no concrete deal has been announced just yet.)
Out of the big three, Lorillard was the early mover in the e-cigarette trend.
In 2012, Lorillard acquired e-cigarette producer Blu eCigs, and their products quickly became the first and most popular selling devices in America — by a wide margin.
The Company currently has nearly 50% of the electronic market locked up and Blu’s popularity continues to grow.
But the other two giants have also joined the e-cigarette wars in a big way.
New products from Reynolds and Altria have since launched with huge marketing campaigns.
Reynolds now offers Vuse, and Altria offers MarkTen and recently purchased Green Smoke Inc.’s E-vapor business for approximately $110 million in a transaction expected to close during the second quarter.
To Reynolds’ credit, Vuse has addressed one of the major complaints regarding early e-cigarettes models — battery life.
First, it tracks the number of puffs you take with each cartridge using a SmartMemory chip. Their illuminated tip which resembles that of a lit cigarette then changes colors to indicate how much battery is left.
Vuse also uses a rechargeable lithium polymer cell that Reynolds claims can last a full day before charging is required. This is achieved by inserting a special VaporDelivery microprocessor that helps to manage power use during consumption.
Meanwhile, the MarkTen’s took a different approach to product uniqueness, which ironically, meant designing the overall smoking experience to be as similar to that of traditional cigarettes as possible.
When inhaling through their patented “Four Draw” chamber, Altria claims their e-cigarettes provide users with a “more consistent experience” that closely resembles the draw of a tobacco cigarette.
And according to ratings agency Fitch: “Green Smoke has limited distribution capability as its products are mainly sold via the Internet. Altria’s much larger retail channel can now offer an E-cigarette portfolio combining the relatively new MarkTen brand with the highly rated Green Smoke products.”
Top E-Cigarette Stock To Buy Today:
Although all three companies that I’ve listed have staked their flag in this still-new market of e-cigarettes, I believe Lorillard Inc. (NYSE:LO) has a few major advantages.
Not only were they the first large tobacco giant (of the three) to enter the space, their Blu eCigs brand has already captured a 50% market share in a short amount of time. Brand loyalty is a huge factor in any business, and I believe the e-cigarette business will be no different.
However, if you’re comfortable with taking on more risk but still want to enter the e-cigarette space, another stock to look at would be Vapor Corp. (OTCMKTS:VPCO).
This tiny microcap designs, markets, and distributes electronic cigarettes and accessories, under the Krave, Fifty-One (also known as Smoke 51), VaporX, Hookah Stix, Alternacig, EZ Smoker, Green Puffer, Americig, Fumaré and Smoke Star brands.
Vapor Corp. has the third largest retail presence behind Lorillard’s Blu and another e-cig company, NJOY. The company’s products are in over 60,000 retail outlets in the United States. Vapor Corp.’s largest competitors Blu and NJOY have a retail presence of over 136,000 stores and 80,000 retail outlets, respectively.
Although still in its infancy, if VPCO continues to gain market share against its competitors, one of the three giants will undoubtedly take notice and make a bid for the company.
Again, this is a higher risk play but it could potentially offer investors explosive profits in the near future.