How (and Where) to Bet on Big Tobacco

In a deal poised to create the world’s largest company, British American Tobacco (BAT) recently announced its intent to buy the remainder of fellow tobacco giant Reynolds American for $49 billion. (It already owns a 42 percent stake.) BAT’s move comes at a time when smoking rates are dropping across the globe. While the entire industry faces heavy pressure in the coming decades, not all Big Tobacco companies are created equal. A few firms are primed for success in regions, from sub-Saharan Africa to the Middle East, that are poised to generate an ever-growing share of industry revenue. Others entrenched in the developed world and East Asia may be overvalued by investors.

The global tobacco industry includes some of the world’s largest companies. Philip Morris (PM), worth a massive $149 billion, owns six out of the fifteen best-selling ciga­rette brands worldwide—though the firm has operated exclusively outside of the United States since its 2008 split from Altria Group. Altria, a $138 billion behemoth, controls all PM brands (such as Marlboro) within U.S. borders. BAT possesses a diverse global presence in regions from Western Europe to South America. Meanwhile,…