Tobacco Stocks: Not for the Nervous Investor

First up is Vector Group (VGR Quote), a holding company engaged in the manufacture and sale of cigarettes in the U.S. via its Liggett Group subsidiary. The firm developed and markets the low-nicotine and nicotine-free Quest cigarette products through its Vector Tobacco division.

Founded in 1873 as Liggett & Myers, Vector's Liggett Group is the fifth-largest manufacturer of cigarettes in the U.S. in terms of unit sales. Liggett makes Pyramid, Jade and Eve 120's branded-discount products as well as Liggett Select in the deep-discount category. The company also produces a number of private-label and distributor-exclusive brands for a total of more than 240 brand styles.

Relatively small by tobacco-company standards with a market capitalization of just $1.06 billion, Vector's stock yields about 9.37%.

Next up is Reynolds American (RAI Quote), a holding company whose subsidiaries include R.J. Reynolds Tobacco, Scott Tobacco and various other companies.

Shares of Reynolds, which has a total market capitalization of $13.42 billion and a dividend yield of 7.43%, was recently trading at less than 10 times next year's projected earnings.

Reynolds' largest operating segment, RJR Tobacco, manufactures Camel, Kool, Pall Mall, Doral, Winston, Salem, Misty and Capri cigarette brands. Those brands, and its other brands, including Salem, Misty and Capri, are manufactured in a variety of styles and marketed in the U.S. to meet a range of adult-smoker preferences. RJR Tobacco also manages contract manufacturing of cigarettes and tobacco products through arrangements with British American Tobacco (BTI Quote).

RAI's Conwood division is a smokeless-tobacco manufacturer whose primary products include moist snuff brands, Grissly and Kodiak. Conwood also distributes a variety of other tobacco products, including Winchester and Captain Black little cigars.

The unique and controversial nature of the tobacco industry makes the standard warning to carefully consider the appropriateness of it as an investment all the more crucial. As with any investment, you can lose money. So, please remember to carefully monitor your holdings and/or place stop-loss orders to help protect you from sudden moves against your positions.

Two Tobacco Stocks: Risk vs. Reward
	Vector Group	Reynolds American
Ticker	VGR	RAI
Reward Grade	A	A-
Risk Grade	B-	C-
Overall Grade	B	B
Recommendation	Buy	Buy
Market Cap ($Billion)	1.06	13.62
EPS (Current Year)	1.00	4.60
EPS (Next Year)	1.03	4.86
Price/Book	11.9	1.8
Price/Sales	2.9	1.6
P/E (Current Year)	17.0	10.5
P/E (Next Year)	16.6	9.9
Dividend Yield (%)	9.4	7.4
Source: TheStreet.com Ratings and company reports. For more information, check out an explanation of our ratings.

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