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Tuesday, October 2, 2018 Stock Pick

Stock Price: $13.61

Vector Group Ltd. operates as a holding company, which manufactures and sells tobacco products. It operates through the following segments: Tobacco, E-Cigarettes and Real Estate.

VGR is a $1.94 billion dollar company in the tobacco space, which is normally a slow-growth, boring industry, but what makes VGR attractive to investors is their potential move into the cannabis space in the long-term. Big tobacco will move into cannabis because it is a complementary business to their already established tobacco business, they're just biding their time until the legal landscape is sorted out.

VGR is profitable, generating $17.3 million in net income last quarter and attractively cash flow positive as well with $40.7 million in cash flow during the same quarter. The company has the cash and short term investments on its balance sheet of $467 million, which can be used to expand into the high growth cannabis industry.

VGR trades at a PE of 23.84, and trading at only 1.06x sales, while a pure play cannabis company like Tilray, Inc. (NASDAQ:TLRY) trades at 547x sales. Clearly, there is a lot of growth potential stored inside of VGR if investors price in a potential move into the cannabis space for VGR. However, the company has not discussed that yet, and it's pure speculation at this point.

From a technical perspective, even without a move into the cannabis space by VGR, the company is trading off its 52-week high of $22.04 with the stock now under $14.00. VGR's stochastics are at an attractive point for an upswing in the stock over the short-term and the stock is oversold with an RSI of only 27.92, currently.

Speculative Score: 2

1 Being the Least Speculative and Most Confident

10 Being the Most Speculative and Possibly the Most Risky

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