So much is said about predictive cash flows and margins of saftey, but the real issue is not whether a company is currently profitable, the real issue in my mind is can it continualy defend that profit from competition. The size of the moat surley the single biggest determing factor in the long term success of an investment. This has been hilighted by the significant out performance of the tobacco sector in the last 11 years on the stock market.
They're likely quite happy growing in areas where governments aren't terribly worried about their population's health just yet. Most of the developing world, say. And an industry in decline is an excellent market, because you aren't going to get new entrants. Nobody, but nobody, is thinking that they must get into the tobacco market. Except maybe John.
I don't agree with Simon wrt the statement that Govs love the tax they collect on tobacco. That is ignoring the fact that Govs( taxpayers present and future) pay for NHI costs - which if you then look at the tax take on Tobacco vs the cost of treating diseases linked to tobacco smoking will almost certainly leave you in a neutral position. NHI in the EU is a VERY significant % of national budgets...and with declining populations... The same argument applies to taxes on alcohol.
It now becomes a debatable point which is the worst linked to illnesses that cost governments the most ie. "fat" food or tobacco. Hence should then the Wimpy's and MacD's etc. not contribute more taxes?
dont get confused.. Govenments dont tax tobacco companies for health reasons.. they tax them becasue they can... because 25% of the population can't make it past breakfast without using their products. Govenments understand the moat concepts well and where there is a moat there is taxation...dont get side tracked
As to when these industries finally stop destroying lives and enriching their shareholders - As Dirty Harry said "are you feeling lucky..? " It might be in less than a decade - on the other hand...Either way I think that one doesn't get to be poor taking a profit sooner rather than later