Try This Healthy Tobacco Trade

Sometimes bad habits can be profitable. Take, for example, a producer of tobacco products. It generally is regarded that smoking tobacco products is not beneficial for your health, and in fact can be dangerous. But still, people continue to smoke. Trading also can be considered dangerous to your health — depending on how a trader handles the stress and anxiety that trading is sometimes known to cause.

Here is a trade idea that benefits from a bad habit and may just provide some stress relief from another. The theory on this covered call trade example is this: Altria Group (NYSE:MO) primarily produces tobacco products. Marlboro and Parliament are a couple of their more famous brands. The company just reported solid earnings last week, including a 9%-plus increase of adjusted earnings per share.

What really was astounding was that MO was able to increase revenues despite a declining cigarette volume. Analysts have forecast that the company’s EPS will grow about 6% a year for the next five years. Technically, a trader could almost not ask for a better six-month chart for a covered call.

The stock has been slowly rising with a few minor pullbacks for better than six months. The stock never has been higher before, so there is no overhead resistance that might stall it from continuing to climb. Is it too good to be true? We’ll have to wait and see.

Smokers drop pricey cigarettes for cheaper alternatives

Cigarette smoking continues to decline, according to the report released Thursday. A modest 2.5 percent drop in cigarette use occurred between 2010 and 2011, but use of other tobacco products jumped 17 percent, according to the U.S. Centers for Disease Control and Prevention.

"What we have seen is the steady progress in reducing the consumption of the most dangerous forms of tobacco, which are inhaled combustible products, stalled because there had been a substitute of roll-your-own and cigarette-like cigars that have increased in recent years due to loopholes in the tax structure," said Terry Pechacek, associate director for science in the CDC's Office of Smoking and Health.

"Smokers overall and youth in particular are price-sensitive and respond to the availability of something that is cheaper that fills their desire for a smokable product," he added. Pechacek noted that small cigars that look like cigarettes except for a dark paper label have been reformulated to bypass the tax law that covers cigarettes.

"These are available for like $1.40 a pack," he said. Nationwide, a pack of cigarettes averages $5.98, according to the Campaign for Tobacco-Free Kids. These products are also not subject to U.S. Food and Drug Administration regulations on flavoring and labeling products "light" or "low tar" as cigarettes are, but are just as "lethal and dangerous as cigarettes," Pechacek said.

Tobacco sales exceed govt projections

THE tobacco selling season closed last week with sales volumes 6,1% above the government revised projection of 130 million kg. Sales volumes for the season totalled 137,5 million kg valued at US$507,2 million. This is 45% and 8,3% ahead of last year’s US$348,7 million and 12,9 million tonnes recorded value and sales volumes, respectively.

Tobacco output was this year initially projected at 150 million kg but was later revised downwards to 130 million kg owing to a decline in the planted hectarage and bad weather. Prices for the season closed 34,2% firmer at an average of US$3,69 compared to US$2,75 last year. Contract sales accounted for 63% of volumes and totalled 86,3 million kg with a value of US$325,6 million compared to auction sales volumes amounting to 51,2 million kg sold at US$181 million.

The Medium-Term Plan (MTP) forecasted tobacco output at 180 million kg this year, which could not be achieved due to limited funding in the sector, among other reasons. The tobacco industry needs US$200 million in fresh capital to return to peak production record of 237 million kg recorded in 2000. The agriculture sector continues to face a myriad of challenges as evidenced by Finance minister Tendai Biti’s mid-term review policy, projecting the sector to decline by 5,8% largely weighed down by poor performance of maize and wheat production which declined by 4,7% and 2,5% respectively. Biti said economic growth has thus been revised down to 5,6% compared to 9,4% partly due to poor performance of the agriculture sector.

He said in order to reverse the decline in the sector and sustain agro-processing industries, government would have to focus on the timely supply of inputs, financing and clarify marketing arrangements for the coming season. Biti said resolving outstanding issues on land tenure was important in facilitating financing for the sector and helping it return to projected growth of 13,7% in 2013 as targeted by the MTP.

Veggie Vaccines: Putting Tobacco to Good Use

In the event of wide-spread influenza pandemic a vaccine would need to be produced and distributed in the quickest time possible. The standard means of developing vaccines involves chicken eggs and could take up to nine months for a vaccine to become available. But this week scientists have managed to produce 10 million doses of a plant-based H1N1 vaccine within just a month. 

The Defense Advanced Research Project Agency (DARPA) have been pursuing vegetable-based vaccine research, called Blue Angel, since 2005. The current process would require nearly one billion chicken eggs to provide for the US. Dr. Alan Magill, DARPA program manager, said in an official statement “we’re looking at plant-based solutions to vaccine production as a more rapid an efficient alternative to the standard egg-based technologies, and the research is very promising.”

The agency hopes that veggie-based vaccines will be strong enough to battle flu with just one dose – compared to the multi-dose vaccines currently used. Plant-based vaccines are developed using ‘virus-like particles’. These particles are non-infectious and help produce anti-viral antibodies. They are produced by synthesizing the DNA of the flu virus, combining it with bacteria, and then soaking plants with the mix. The plants start producing the flu-fighting particles within minutes.

Protein extracts from the plants then become the basis for a vaccine. Tobacco is the most popular plant for this process as it grows relatively fast; with tobacco a vaccine could be produced in a matter of weeks. Potentially, 100 million vaccines could be produced a month. So government is funding the cultivation of tobacco? Medicago – a firm funded by DARPA – held $21 million worth of funding from the pentagon.

Advocates: ND tobacco ban on Nov. ballot

Supporters of a total ban on smoking in bars and other North Dakota workplaces say the issue will be on the ballot in November. Backers of a voter anti-tobacco initiative say they're turning in their petitions to Secretary of State Al Jaeger on Thursday. They say they have more than the minimum of 13,500 names needed to assure a public vote.

North Dakota already prohibits smoking in most public places. The initiative goes further. It would ban smoking in bars, motels, tobacco shops and private nursing home rooms. The measure sets up a penalty system for violations and says bar owners who allow smoking could have their liquor licenses revoked. If the petitions have enough names, the anti-tobacco proposal will be listed as Measure 3 on the November ballot.

New tax could crush tobacco shops

Tennessee tobacco farmers will see taxes on their products rise because of a new state law that is mirrored by a provision in the federal highway bill passed in July. Although Washington politicians have touted the federal law as supporting or creating around a million jobs, the provision taxing roll-your-own tobacco shops as manufacturers end to an entire industry.

“It’s definitely a major body blow, a knockout punch if you will,” said Mark Griffey, one of the proprietors of Smokes-4-Less in the Knoxville area. Griffey said he shut down two of his three stores and laid off nine of his 10 employees after the federal bill was signed. “So, for all intents and purposes, if we don’t get some kind of injunction or antitrust suit, or something, we’re dead,” he said.

Challenge to FDA Tobacco Panel Continues

A lawsuit challenging the U.S. Food and Drug Administration’s (FDA) tobacco advisory committee has been allowed to continue by a federal judge, the Associated Press reports. U.S. District Court Judge Richard Leon dismissed the agency’s motion to reject the lawsuit filed by R.J. Reynolds Tobacco Co. and Lorillard Inc. last year.

 The suit claims certain members of the Tobacco Products Scientific Advisory Committee have financial conflict of interest and bias. Because of those allegations, the tobacco companies want the court to ensure the agency doesn’t reply on panel recommendations. “Because of the limited number of viewpoints on these issues, the scientific — as opposed to political — nature of those viewpoints, and the distinct responsibilities of the committee, I believe I have sufficient standards which I can evaluate the agency's discretion,” said the judge.

 “The practice of appointing members to a government scientific advisory committee who have financial interests that violate conflict-of-interest laws and regulations should be subject to judicial review, as the court has now recognized,” Lorillard wrote in a statement. Previously, Altria Group and other cigarette manufacturers had requested that the FDA take panel members off because of conflicts of interest. However, Altria isn’t part of this suit.