The Motley Fool

3 Reasons Why British American Tobacco plc Is On My Buy List

British American Tobacco (LSE: BATS) (NYSE: BTI.US) is a stock that investors seem to either love or hate.

Many, like me, love its yield and the growth potential it offers. However, others (understandably) feel that its product is so harmful that they would not even contemplate investing in it.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

However, half-year results released recently highlighted to me just how much of a star performer British American Tobacco is.

For instance, despite volumes falling by 3.2% versus the first half of 2012, the company managed to increase turnover by 4% as a result of higher pricing.

Furthermore, adjusted diluted earnings per share (EPS) increased by an impressive 8%, partly due to turnover growth but also a result of efficiency improvements and considerable cost savings that are being driven through by the company.

Indeed, prospects also look bright, with the Chairman commenting that he is “confident of another year of good earnings growth”, while the CEO stated that the results evidenced “strengthening the foundations for another year of good results in line with our long-term strategic goals”.

So, with the results being positive, I’m considering buying shares in the company for the following three key reasons.

Firstly, although smoking is expensive in the UK, the aforementioned price increases may have much further to go elsewhere, where smoking remains relatively less expensive compared to average incomes than it does in the UK. In other words, the sales growth seen in the results could continue despite volumes of cigarettes sold continuing to fall.

Secondly, British American Tobacco is following, in my view, a very sound strategy. It is focused on four brands of cigarettes: Lucky Strike, Davidoff, Pall Mall and Kool, with these four hitting different customer price levels and being the main focus of sales growth.

In addition, it is aiming to cut costs further through more efficient processes, an improved supply chain and more modern machinery. Such a strategy should mean that profit growth continues in future.

Thirdly, British American Tobacco offers impressive growth prospects. EPS is forecast to grow by 6% this year and 8% next year. Although this is not extraordinary, it is nevertheless above-average and arguably is a more predictable and stable growth rate than many cyclical stocks, for example, can offer.

So, I’m keen on British American Tobacco’s strategy, its potential to increase prices and the attractive growth prospects it offers and, as a result, I’m thinking of buying some shares in the company.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

> Peter does not own shares in British American Tobacco.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.