Why this industry could be the fastest-growing sector in the world

This industry could be worth considering for investment.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s always challenging to determine the long-term growth rate of any industry. Inevitably, things change and forecasts can often prove inaccurate. However, one industry where there could be growth potential in the long run is the tobacco sector. Clearly, the popularity of smoking is declining across the developing and developed world. However, with new products and a rising world population, the future could still be relatively bright for tobacco stocks across the globe.

Rising population

Consumers across the developed and developing world are becoming increasingly health conscious. This means that the proportion of adults who smoke is on a downward trend. This looks set to remain over the long run, with fewer adults choosing to take-up smoking due to the health risks which it poses.

While this would normally mean fewer smokers, the reality is that world population growth could cause the absolute number of smokers to rise in future years. In other words, while the proportion of smokers may fall, their total number may be higher in a decade than it is today. This could create a tailwind for tobacco companies, who may be able to generate higher volumes even with the threat of plain packaging and higher duty by governments across the globe.

New products

One feature of the tobacco industry is its increasing use of new technology. Until the last few years, the sector was viewed as a quasi-utility, with it offering a degree of stability and resilient growth. Thanks to e-cigarettes, however, the nicotine delivery marketplace offers strong growth potential, with other Reduced Risk Products (RRPs) set to come to market over the medium term.

Eventually, tobacco companies may be able to produce a product which offers the same consumer experience as tobacco products, but with next to no negative health effects. Although this may be some way off, tobacco companies are investing heavily in new technology and it could prove to be a growth area for the business. Without the negative health effects of smoking, the downward trend in the proportion of adults who smoke may cease, and it could even be argued that smoking will become more popular in future.

Long-term growth opportunity

As well as RRPs, tobacco companies may also have scope to move into other product areas such as marijuana. In the US, this is expected to become a much larger market, since an increasing number of states are considering its legalisation. At the same time, a number of major tobacco companies are apparently considering entry to the market, where their ability to generate efficiencies and produce products on a large scale could allow them to generate economies of scale versus smaller rivals.

Alongside the forecast for world population growth and the increasing popularity of RRPs, this means that the tobacco industry could become the fastest-growing sector in the world. As such, now may be the perfect time to consider investing in it.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »