Cigarette companies' shift towards smoke-free products

What happened: Cigarette giants Altria and Philip Morris International (PMI) are shifting their focus towards smoke-free products. Altria maintains dominance in the U.S. with Marlboro, generating substantial free cash flow. PMI, however, is aggressively expanding its global smoke-free portfolio, including IQOS and ZYN, in over 100 markets. The FDA recently allowed PMI to market its ZYN nicotine pouches as less harmful than cigarettes, a significant regulatory win.

Market impact: This shift is reshaping the tobacco industry, with smoke-free products driving growth and margin expansion. Altria and PMI, the two largest players, are leading this transition. The FDA's approval for PMI's ZYN pouches could accelerate demand for these products, potentially stealing market share from traditional cigarettes. This narrative is pushing tobacco stocks higher, with both Altria and PMI ranking among the best low-risk, high-growth stocks.

What to watch next: Investors should monitor PMI's Q2 2023 earnings (scheduled for July 28) for updates on its smoke-free product sales growth. Additionally, watch for any further FDA regulatory decisions on reduced-risk claims for other tobacco companies' products, which could impact the competitive landscape. Lastly, track Altria's progress in expanding its on! nicotine pouch distribution, as announced in May 2023.