12/06/2019

The Quiet Collapse in Energy & High Yields in Tobacco

The Quiet Collapse in Energy

Low oil prices unleashed through the fracking boom has caused more carnage in the oil sector than all but a few realize. The market capitalization of oil related stocks in the S&P 500 is now approaching 5%, a fraction of the nearly 25% comprised of technology. This difference, amazingly, exceeds the peak reached during the internet bubble in 1999.

Amongst smaller stocks, energy has fared even worse since the prior market peak in mid-year 2018. Where might investors search for value? One place might be amongst the large majors with demonstrated ability to generate cash.

High Yields in Tobacco

With 10-year treasury yields approaching 2%, those seeking yield will not find much help in foreign bond markets. Greece 10-year bonds yield only a few basis points over their American peers, Portugal 10-year bonds yield 60 basis points, in Switzerland investors need to go out 40 years to even get a few basis, and yields in Japan have not been attractive since longer than we care to remember.

Unfavored cash generating stocks might be another place for investors to look. Previously we noted, the unfavored Energy sector might contain some attractive stocks with the ability to generate cash, in terms of both reported earnings which are needed to declare the dividend, and actual cash which is needed to pay it. Perhaps an area only more vilified than Energy, and Wall Street, is Tobacco.

Dividend yields on US listed companies Altria (MO) and Phillip Morris (PM), are approximately 6.6% and 5.75%. Overseas companies British American Tobacco (BAT) and Japan Tobacco (2914) are all yielding in excess of 6.5%.


To review previous market perspectives, click the following links:

About Paul Blinn 16 Articles

Managing Director of Toreador Research and Trading

About Paul Blinn 16 Articles

Managing Director of Toreador Research and Trading