Can Blu Revive Cool Factor For Lorillard's Stock?


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Individual investors should always look to see if smart money is going into or out of a stock.

One way to gauge that is to count how many funds that are rated by IBD as A+ are opening positions, adding shares or standing pat with existing positions, vs. funds that are exiting or lessening exposure.

Cigarette makerLorillard ( LO ) might not seem like a magnet for elite funds. However, in the first quarter, 15 A+ funds either opened positions or added shares; five stood pat with existing positions; three lightened positions modestly; and zero A+ funds exited the stock.

Quality fund support often means something new is going on in a stock. For Lorillard, the Blu e-cigarette company that it acquired in April 2012 might be the new factor.

"This is going to be a very big category," Lorillard CEO Murray Kessler said at a Tobacco Merchants Association meeting in 2012. "I don't think you've seen anything yet."

How big could e-cigarettes get? Consider this: In old movies actors commonly smoked on screen, adding glamour to cigarettes. That's faded since 1950, according to an Annenberg study . Flash forward to the 2010 film "The Tourist." In one scene, Johnny Depp sits on a train, smoking an e-cigarette, and Angelina Jolie is drawn to him.

Is the cool factor reborn in e-smoking? Hard to say, but the potential is there.

Blu e-cigarettes contributed only about 3.3% of Lorillard's net sales in 2013. Some might say that's too small a factor to matter. (Some analysts said the same when Apple started selling non-computer products.)

The e-cigarette space is fragmented, but Blu has a 47% market share. As of December, Blu was available in 136,000 retail locations.

Critics of e-cigarettes say the nicotine cartridges are made in China with no controls over what's in the liquid. Blu makes its liquids in the U.S., with quality controls, before exporting them to Asia for assembly.

Lorillard's annualized dividend yield is 4.6%. The stock is in a buy zone to 56.04.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Investing Ideas

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