Declines From Reynolds American Inc (RAI) Drive Down Tobacco Industry

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

Reynolds American ( RAI) pushed the Tobacco industry lower today making it today's featured Tobacco laggard. The industry as a whole closed the day down 1%. By the end of trading, Reynolds American fell 49 cents (-1.1%) to $44.25 on average volume. Throughout the day, 2.3 million shares of Reynolds American exchanged hands as compared to its average daily volume of 2.4 million shares. The stock ranged in price between $44.17-$44.84 after having opened the day at $44.76 as compared to the previous trading day's close of $44.74. Another company within the Tobacco industry that decreased today was Alliance One International ( AOI), down 2.4%.
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Reynolds American Inc., through its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States. The company operates through RJR Tobacco, American Snuff, and Santa Fe segments. Reynolds American has a market cap of $24.41 billion and is part of the consumer goods sector. The company has a P/E ratio of 19.8, above the S&P 500 P/E ratio of 17.7. Shares are up 8% year to date as of the close of trading on Tuesday. Currently there is one analyst that rates Reynolds American a buy, one analyst rates it a sell, and eight rate it a hold.

TheStreet Ratings rates Reynolds American as a buy. The company's strengths can be seen in multiple areas, such as its notable return on equity, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

For investors not wanting singular stock exposure, ETFs may be of interest. Investors who are bullish on the tobacco industry could consider PowerShares Dynamic Food & Beverage ( PBJ) while those bearish on the tobacco industry could consider PowerShares DB Agriculture Sht ETN ( ADZ).

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