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Why big tobacco will never go away

Talking Numbers

Why big tobacco will never go away

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The end of smoking in America may not be just a dream, says the Surgeon General.

After releasing a 978-page report, Boris Lushniak, Acting Surgeon General of the United States, says he is targeting a smoke-free America. Elsewhere, it's been reported that health officials are thinking that the US smoking rate of 18% can be dropped to as little as 5% in the next quarter-century.

Meanwhile, Wall Street is already projecting diminishing revenues for tobacco companies. Wells Fargo analyst Bonnie Herzog projects that sales of cigarettes will fall from an estimated 12.8 billion packs in 2014 to 4.5 billion packs in 2023. Access to cigarettes is already shrinking as one of the largest chain of drugstores in the country, CVS, announced last week that it would be phasing out its cigarette sales.

(Read: CVS becomes first big U.S. drugstore chain to drop tobacco)

So, should investors in America's largest seller of cigarettes, Altria (the parent company of Philip Morris USA), be worried about their investment?

Not according to the stock charts, says Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson.

"There's a reason why the government has lumped alcohol, tobacco, and firearms into one group," says Ross. "These are three things that Americans cannot and will not live without."

On a short-term basis, Ross believes the charts on Altria are showing a v-shaped reversal after the stock broke below what he sees as the neckline of a head and shoulders pattern at $37 per share. The stock closed at $35.19 on Monday, five days after breaking below the $34 mark.

But it's the Altria's long-term chart that makes Ross a buyer of the stock. "Since breaking back above the key 100-week moving average back in 2009," says Ross, "the stock has tested it and held on multiple occasions each time, proving to be a compelling buying opportunity."

(Read: Lightning Round: Altria, Gogo & More)

The 100-week moving average is currently at $34.39 per share. With the stock now above that level, Ross believes it's a buy. 

"I think it's an incredible buying opportunity once again for tobacco," says Ross, "which, unfortunately, is something Americans cannot and will not live without."

CNBC contributor Andrew Busch, editor and publisher of The Busch Update, believes Altria is looking ahead to a new line of business: e-cigarettes. Revenues in the "e-cig" business are expected to grow at a pace of 34% every year for the next decade, according to Wells Fargo. Altria recently purchased the relatively small e-cig company Green Smoke for $110 million last week. Busch sees it as just the beginning.

"They were in this market already," says Busch. "But they're stepping in to buy more."

Busch also believes Altria is a buy. "The growth rates in e-cigs are ginourmous," says Busch. "That's why there's growth potential [in Altria]."

To see the rest of the discussion on Altria with Ross on the technicals and Busch on the fundamentals, watch the video above.

 

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