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Smokeless Tobacco Players: Who Will Come Out On Top?  

Despite the 6.5% yield, RAI is trading around its 52-week low of $51.08. RAI has been taking hits in the headwinds of analyst downgrades and lowered guidance, but trading flat since May 1st. This is not the Conwood division's fault; the producer of the discount dip posted double digit volume growth, according to the Winston-Salem Journal. In fact, Conwood has huge growth opportunities, making up only 4% of revenues in 2006. RAI should follow in UST's footsteps and start to market more varieties of its discount products.

Is it time to try to catch a bit of a, I don't know, let's call it a falling butter knife? Execs must think so after initiating a $350 million buyback program for the forward twelve months. RAI has a strong balance sheet; lots of cash, in other words, your 6.5% yield is safe. Now, time your entrance point right or cost-average down and you'll mint money.

One last thought to ponder: Altria (MO), better known as Philip Morris USA, is testing its own smokeless tobacco product. If market penetration proves difficult for big MO, will either subsidiary be ripe for acquisition by the tobacco giant? Would not be a big surprise to me.

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