|Written by GSCR Staff
|Wednesday, 16 July 2014 07:53
Yesterday there was big news in big tobacco industry as Reynolds American, Inc. (NYSE – RAI) struck a deal to buy Lorillard Inc. (NYSE - LO) for about $25 billion, excluding debt, that will make the new merger a powerhouse Company controlling about 90% of the market.
This was right on cue from our mention of sin stocks in this week’s Guide. How can we play this momentum?
Back in April we highlighted Alliance One International (NYSE – AOI - $2.97) as a great possibly play on vice stocks. The Company supplies processed leaf tobacco to cigarette and other consumer tobacco products on several continents throughout the world. The stock has bounced around the $2.50 mark and has been unable to break through the $3.00 mark since our initial feature.
Will this momentum in the tobacco industry benefit AOI and should we keep it? We still believe the deal the Company made for a joint venture with China Tobacco through its subsidiary Alliance One Brasil Exportadora de Tabacos for contracts with 9,500 growers in Brazil will provide the expected 3% top line from FY2014 to FY2015. And we are comfortable reiterating that the $4.50 mark is achievable this year.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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