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Tobacco Stocks to Light Up Your Portfolio: Analyst

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Bonnie Herzog, a Wells Fargo tobacco analyst, said her top pick is Philip Morris, which hit a fresh all-time high on Monday.

“We think profits for PM in Indonesia can quadruple by the year 2020, so to us, this stock has a lot more room on the upside in the next three to five years,” she said. “It should be a core holding in your portfolio.”

Rising international smoking rates should benefit the company due to its vast infrastructure and diversification. It is also the only tobacco company with a partnership in China, she said.

Last week, Herzog upgraded Philip Morris’s competitor Altria to an “outperform” rating, with a $33 price target. She said the company has begun to grow its Marlboro brand profitably.

While global regulation and advertising restrictions will continue to impact tobacco stocks, these shares still dole out some of the market’s biggest dividends.

“Dividend payout for these guys is about 80 percent,” she said. “They do grow in line typically with earnings, so I think that’s something you can count on.”

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