After Years of Being Shunned, Tobacco Stocks Are Stirring Again
Shares in tobacco companies are attracting global investor attention once again after years of being shunned due to ethical considerations and regulatory pressure. This time, the revival is being driven by the rapid growth of smoke-free products such as e-cigarettes, heated tobacco devices, and nicotine pouches.
According to a report by The Wall Street Journal, companies that have successfully shifted their business towards non-conventional products are receiving higher valuations on the stock market. Philip Morris International (PMI) is the most prominent example, while British American Tobacco (BAT) is seen as following suit. Investors who bought BAT shares two years ago have already doubled their investment, a performance that has outpaced the gains of the ‘Magnificent Seven’ technology stocks. The broader tobacco sector has also performed positively, with Altria Group, the maker of Marlboro in the United States, surging more than 50% over the same period.
One driving factor is a change in policy direction in the United States. The second Trump administration is perceived as more industry-friendly than the Biden administration, easing investor concerns about regulatory risks that have weighed on tobacco stocks for years, particularly since the US Food and Drug Administration (FDA) threatened to tighten rules on conventional cigarettes in 2017. Tobacco companies have also reportedly increased political lobbying, including contributions to pro-Trump political action committees, to advocate for industry interests.
Recent changes in FDA policy are seen as a particular boon for BAT. Regulators now allow manufacturers to sell new vape products and nicotine pouches while their Premarket Tobacco Product Applications (PMTA) are still under evaluation. Previously, companies had to wait for full approval before marketing products, a process that could take years and was blamed for stifling innovation and allowing illegal products to dominate the market. Analysts at Jefferies estimate that more than two-thirds of vape products circulating in the United States are illegal, with the majority originating from China.
Despite criticism from public health advocates, the new policy is expected to accelerate the expansion of the smoke-free product business. This shift is crucial as the number of smokers in North America continues to decline; Jefferies notes that cigarette sales volumes in the region have fallen by about a third since 2020. While tobacco companies have historically maintained revenue through price increases, this strategy is seen as unsustainable in the long term as the consumer base shrinks.
The transformation towards smoke-free products is also opening the door for the return of institutional investors who previously avoided tobacco stocks due to Environmental, Social, and Governance (ESG) criteria. Although the tobacco industry remains one of the most excluded sectors from investment portfolios—alongside weapons and fossil fuels—some fund managers are becoming more open to companies actively reducing their reliance on conventional cigarettes.
PMI is leading this transformation. By 2025, approximately 41% of its revenue came from non-combustible products, led by its IQOS heated tobacco device, which has been successful in Japan and Europe but is not yet fully marketed in the United States. In the US market, PMI relies on Zyn, a popular nicotine pouch. This shift has led to PMI’s stock trading at a valuation of around 21 times projected earnings, roughly 70% higher than both BAT and Altria.
Meanwhile, about 20% of BAT’s global revenue now comes from smoke-free products like Vuse and Velo. Based on PMI’s experience, this level is the starting point at which the market begins to assign a premium valuation. BAT aims to generate half of its revenue from smoke-free products by 2035. To achieve this, the company must recapture vape consumers in the United States, many of whom currently use illegal products. BAT is already seeing rapid growth from Velo Plus, a nicotine pouch that has become one of the fastest-growing brands in the US. Data from Jefferies shows BAT’s market share in the segment jumped to 16.2% in 2025 from just 6.7% a year earlier. Changing consumer preferences are also helping, with users now favouring moist pouches like Velo Plus over older, drier versions of Zyn, prompting PMI to launch a moist version of Zyn in the US market.
Historically, tobacco stocks have been associated with investors seeking high dividends and cheap valuations. Now, the sector is beginning to attract growth-oriented investors as it demonstrates business expansion while many other consumer goods companies face slowing sales. A survey by the US Sustainable Investing Forum indicates that 60% of investors still exclude tobacco stocks from their portfolios in 2025, but this is down from 66% the previous year, signalling a shift in perception. While the debate over the benefits of vapes compared to cigarettes continues, many experts agree that smoke-free products carry lower health risks.