Tobacco maker Lorillard settled to a 4% gain Friday after
surging nearly 7% in early trade. Its IBD Dividend Leader peer
Reynolds American went the other way, narrowing an early 3% loss
to 1% by the end of the day.
The two stocks moved on early reports, confirmed later in the
day, thatReynolds American (
) was in talks to buyLorillard (
). The deal, which could be announced as early as Monday,
according to the Wall Street Journal, would create the industry's
second-largest player, with market capitalization of more than
$50 billion. Market leaderAltria (
), also an IBD Dividend Leader, sports a market cap of more than
Altria owns the Marlboro brand. Reynolds is home to Camel,
Pall Mall, Winston, Salem and Kool. Lorillard markets the Newport
and Maverick names.
Cigarette makers, like alcohol makers, are often viewed as
defensive plays in stressed markets. Demand for such products
tends to remain steady, regardless of economic conditions. But
health concerns and regulatory restrictions have led to long-term
declines in cigarette sales. Lorillard is a leader in electronic
cigarettes, seen as a smokeless, less dangerous alternative to
traditional smoking and considered one of several hot spots
within the industry.
British American Tobacco (
) owns 42% of Reynolds. Another British tobacconist, Imperial
Tobacco, announced Friday that it was discussing a possible
acquisition of assets from both Reynolds and Lorillard.
Lorillard shares have easily outpaced the market this year,
rising 31% since Dec. 31. The stock eked out a new high Friday
but has had trouble breaking free of its 10-week moving average
since clearing a flat base in May. The company's dividend yields
Reynolds is up 23% year to date and has tested 10-week support
once since a March breakout. Its dividend yields 4.3%.