Why Avoid Tobacco Companies?

Is the act of smoking cigarettes a sin? Should Christians be smoking? What about owning tobacco companies? If you own stocks in tobacco companies, are these the types of companies you are proud to own? For years tobacco companies have been lumped into the “sin stock” category. What are your thoughts?

I have pioneered a process called the Proud to Own Process. This process takes a look at aligning a person’s faith, values, morals, and beliefs into their financial plans and investment portfolios. So I always ask prospective clients if there are any companies or moral issues they would be opposed to investing in. I provide examples such as abortion, pornography, embryonic stem cell research, gambling, tobacco, and alcohol. Tobacco always seems to be an area many never think about.

So Why Tobacco-Free Investing?

Someone recently asked me why I personally never considering owning a tobacco company. My response was I do not feel comfortable investing in a terminal industry, an industry that produces a product that if you follow the directions on the side of the carton, it will eventually kill you. When you look at tobacco as a product, there is no denying that it’s bad for individuals, bad for our country, and bad for our overall economy!

Screening of tobacco companies from an investment portfolio is a traditional values-based and socially responsible investing approach. These investors are concerned with the societal issues of tobacco use, primarily focused on health issues. Other investors may want to avoid companies in the tobacco industry to reduce the risk associated with such investments (lawsuits and liability exposure).

Where we invest is a vote for our values even if you only own a small portion of a company. The source of the profits is more important than the amount of profits, but it is not an ether or scenario. You can have both principles and profits! I’m not here to tell you to smoke or not to smoke, that’s your personal choice. It’s also your choice when it comes to investing in or avoiding tobacco companies.

Individual investors can avoid tobacco through tobacco-free funds, broadly-screened Socially Responsible Investment funds, many faith-based mutual funds or biblically responsible funds, and by screening their stock portfolios. While screening may imply lower performance, there have been no significant studies produced that show avoiding any types of companies (tobacco included) affect the performance of the overall portfolio, either positive or negative. If you or a money manager is good at selecting stocks, narrowing the pool of choices still leaves enough good financial choices to achieve competitive returns.

As a Christian, when we invest, if we are truly incorporating our faith into our investment decisions, we should seek to be Christ-Centered. This means investing in a way to bring Him glory and honor. We should seek out companies making a positive difference in our society and try to avoid companies that are harming our culture and society. This includes companies making products and services that keep people addicted or trapped in sinful lifestyles. With thousands of potential investment choices, why even consider investing in the tobacco industry?

Here is a list of companies involved in the tobacco industry:

Alliance One International Inc (Symbol AOI): Alliance One International buys, processes, stores, and sells leaf tobacco. The company purchases tobacco in the United States, Asia, Africa, Europe, and South America for sale to manufacturers of cigarettes and other tobacco products in more than 90 countries. Sales of flue-cured and burley tobacco for American blend cigarettes compose most of the company’s revenues.

Altria Group (symbol MO): Altria comprises Philip Morris USA, John Middleton, and Philip Morris Capital. It also owns 28.6% of SABMiller, the world’s largest brewer. PM USA is the largest manufacturer and distributor of cigarettes in the U.S. John Middleton is the second-largest maker of machine-made cigars.

Lorillard Inc (Symbol LO): With annual sales of around $4 billion, Lorillard is the third-largest cigarette manufacturer in the United States. Its flagship brand, Newport, claims a 10% share of the total cigarette industry, and a near 35% share of the menthol category. The firm also competes in the non-menthol premium category with the brands Kent, True, Max, and Satin, and in the discount segment with Old Gold and Maverick.

Reynolds American (Symbol RAI): Reynolds American is the second-largest domestic cigarette manufacturer, behind Altria, with a portfolio of brands that includes Camel, Kool, and Pall Mall. In 2006, Reynolds acquired Conwood, the second-largest domestic producer of smokeless tobacco through such brands as Grizzly, Kodiak, and Levi Garrett. Conwood also manufactures small cigars and roll-your-own tobacco. Another subsidiary, Santa Fe Natural Tobacco, manufactures additive-free cigarettes.

Star Scientific (Symbol STSI): Star Scientific, along with its subsidiary, Star Tobacco, is a technology-oriented tobacco company seeking to develop, license, and implement technology to reduce the carcinogenic toxins in tobacco and tobacco smoke. Star Scientific sells cigarettes under the Mainstreet, Sport, and G-Smoke brands, as well as smokeless tobacco products and powdered tobacco, all containing their cured, lower-toxin tobacco

Universal Corp (Symbol UVV): Universal has operations in tobacco, agricultural, and lumber and building products. It provides buying, processing, packing, storing, and other merchant services for producers of tobacco products. The company’s Universal Leaf Tobacco subsidiary provides tobacco-leaf dealer services.