This week

TheStreet.com

continues the weekly focus on winning analysts for each industry category from our

Analyst Rankings -- Equity 2000

survey. However, we're digressing from the planned tech schedule to look at the top-ranked analysts in the tobacco industry, which has been prominent in the news lately. (For our last focus, on application software, click

here.) Next week, we'll look at the pharmaceuticals sector.

Despite recent high-profile court cases targeting the tobacco industry, our top-ranked analysts see positive trends in the sector long-term. While all expect litigation to continue for the foreseeable future, they believe that the market has factored this variable into its pricing of cigarette shares. Let's hope so. Over the last year, the sector has underperformed the

S&P 500

by about 40 percentage points.

Two of the analysts profiled here argue that some of these stocks have been discounted too steeply. The market's reaction to the recently announced verdict in the Engle class-action lawsuit supports this theory. On July 14 a Florida jury slapped Big Tobacco with a whopping $145 billion in punitive damages. (See our related

story.) But Wall Street barely reacted: Stock prices for cigarette makers slipped only about 3%. Just days after the verdict, two of the largest defendants in the case,

Philip Morris

(MO) - Get Report

and

R.J. Reynolds Tobacco

( RJR), released second-quarter earnings that met Wall Street expectations. Both stocks rose on the announcements.

To be sure, these stocks are not for the faint-hearted. Shares of the major names, which traded at as much as 20 times earnings in 1998, now trade at seven and eight times earnings. For the past year, the sector has fallen about 35%. As these stories were being researched, tobacco's litigation woes had taken yet another turn for the worse: The July 31 issue of

Newsweek

reported that a federal grand jury in North Carolina was probing the links between Big Tobacco and international cigarette smuggling. See our related story on the sector's

woes.

The tobacco wars and recent performance notwithstanding, our winning analysts each have picks among the major players. All three cite positive fundamentals for Philip Morris, which owns the dominant Marlboro brand.

British American Tobacco

(BTI) - Get Report

and

Loews Corp.

( LTR) are other favored names.

Click here to see a calendar of the categories we will feature in the weeks ahead.

Click here to see the sector spotlight on information technology consulting and services.

Click here to see the sector spotlight on Internet software and services.

Click here to see the sector spotlight on application software.

Click here to see the stories in this series that have already appeared on our site.

Tobacco

Rate Their Stock Picks: Which stock do you like best? Feldman and Cohen: Philip Morris Adelman: British American Tobacco

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