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TheStreet Open House

This 'Hated' Stock Is Making Investors Rich

Stocks in this article: BTI

The company my screens identified is British American Tobacco (BTI). It's headquartered in the United Kingdom and is the world's second-largest tobacco company. British American has more than 200 brands of tobacco products and boasts a dominant market share in more than 50 markets.

Almost unbelievably, the company sold 705 billion cigarettes in 2011. As you may imagine, it is among the top-60 companies worldwide by market capitalization. We are talking the big leagues here.

Even more interestingly, the company was included in the Dow Jones Sustainability World Index for responsible businesses due to its efforts in that regard. What does it take for a tobacco company to be honored in the Dow Jones Sustainability Index? To make the list, the company had to offset the negative aspects of its business with positive environmental initiatives.

The company also resumed its stock buyback program in February and has reported a sales increase across many of its various brands.

The company is in a solid uptrend. Bouncing from a low in the $93 range on June 1, shares have skyrocketed to more than $108 in 9 weeks. The rally was interrupted by a short, sharp selloff during the 3rd week of July. But shares were quickly bought on the dip, pushing the price to the current all-time highs.

Risks to Consider: Tobacco has a bad stigma. British American faces strong challenges from regulations and class-action suits. In fact, the company currently has multiple cases in litigation across the globe. It has also been forced to clean up tobacco farm sediment in Wisconsin's Lower Fox River. These expectations are normal with a company this large, as they make a huge target for fee-hungry lawyers -- not to mention the precedents set in previous tobacco litigation.

Action to Take : Despite the negatives, British American Tobacco is a solid company with strong fundamentals. I like this stock as a breakout play right now. Buying on a close above $110 makes solid technical sense. Stops should be at $105 for this entry level with a target price of $125 within 20 months.

Dave Goodboy does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.

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