Looking for safer growth, as investing conditions get riskier? Companies that make money from human vice tend to be correction and recession resistant. One of the leading “sin” stocks is Big Tobacco stalwart Philip Morris International (NYSE: PM).

Instead of using the word sin, think of Philip Morris as an “addiction” stock. As such, the company’s products should experience resilient demand even during the economic downturn that many analysts are predicting will occur in 2019, or 2020 at the latest. Below, I explore whether Philip Morris is a smart buy now.

But first, a few words about so-called sin stocks.

Some investors shun tobacco stocks, just as others refuse to put money into defense contractors, gun makers, gambling casinos, liquor distilleries, or even marijuana plays. Their moral qualms are understandable and I respect such sentiments. But as an investor, I prefer to take the world as it is, not as I wish it to be. I leave emotion out of it.

If you consider tobacco stocks to be evil, then investing in Philip Morris isn’t for you. But if you’re looking for growth and income wherever you can find it, read on.

And you might be surprised to learn that Philip Morris wants to quit cigarettes. (Seriously.) The company is pivoting away from traditional tobacco offerings toward smoke-free and reduced-risk alternatives. Can this strategic repositioning succeed?

What Is Philip Morris?

Philip Morris International (market cap: $137.8 billion) is a multinational cigarette and tobacco manufacturing company, with products sold in over 180 countries outside the U.S. The company’s best-selling product is Marlboro, a brand with iconic status around the world.

Until a spin-off in March 2008, Philip Morris International was an operating company of Altria Group (NYSE: MO). The rationale for the split was to allow Philip Morris to focus on international markets, while sidestepping litigation and regulatory pressures against tobacco in the U.S. Altria focuses on the U.S., whereas PMI does not operate in this country.

Philip Morris’ portfolio of brands is led by Marlboro, which accounted for 34% of the company’s total 2018 cigarette shipment volume. Other brands include Parliament, Virginia S., L&M, Lark, Merit, Muratti, Philip Morris, Bond Street, Chesterfield, Next, and Red & White.

How Has Philip Morris Stock Performed?

• Over the past 12 months, PM has lost 8% and the S&P 500 has gained 6%.
• Over the past two years, PM has lost 21.5% and the S&P 500 has gained 19.2%.
• Over the past five years, PM has gained 6.9%, the S&P 500 has gained 51.1%, and the benchmark Consumer Staples Select Sector SPDR ETF (XLP) has gained 29.6%.

How Has Philip Morris Performed In 2017/2018?

• In 2017, PM gained 15.8 % and the S&P 500 gained 19.4%.
• In 2018, PM lost 35.9% and the S&P 500 lost 7.5%.

Who Are Philip Morris’s Rivals?

Altria (NYSE: MO)

With a market cap of $106.8 billion, Altria has leading positions in cigarettes as well as smokeless tobacco. Its portfolio of products sports four premium brands that are market leaders: Marlboro (in the U.S.), Black & Mild, Copenhagen, and Skoal. The company also produces and sells varietal and blended table wines, and sparkling wines.

In December 2018, Altria announced that it was buying a 45% stake in the Canadian marijuana company Cronos (NSDQ: CRON) for $1.8 billion. This represents Altria’s first venture into the marijuana space, giving it an early foothold in cannabusiness.

Marijuana is a booming market. Large companies across various industries are showing interest in these Canadian companies because of the wide variety of medical benefits that THC and CBD, the main chemical components of marijuana, offer users. The accelerating legalization of pot is a major impetus behind the “green rush.”

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British American Tobacco (NYSE: BTI)

London-based British American Tobacco (market cap: $94.5 billion) sells leading brands in 180 countries. The company’s four largest-selling brands are its native brand Dunhill and U.S. brands Lucky Strike, Kent and Pall Mall. Other brands that the company markets include Benson & Hedges and Rothmans.

In January 2017, British American Tobacco bought Reynolds American for $49.4 billion.

A subsidiary of British American Tobacco, Reynolds American is the second-largest tobacco company in the U.S. Based in Winston-Salem, North Carolina, Reynolds’ holdings include R. J. Reynolds Tobacco Company, American Snuff Company, Santa Fe Natural Tobacco Company, and Niconovum.

Reynolds American’s cigarette brands include Newport, Camel, Pall Mall, Kent, Doral, Misty, Capri, and Natural American Spirit.

Imperial Brands PLC (OTC: IMBBY)

UK-based Imperial Brands (market cap: $32.7 billion) makes and markets several well-known tobacco brands in 160 countries, including Davidoff, Gauloises Blondes, JPS, West, Lambert & Butler, Bastos, Fine, Winston, News, and Parker & Simpson.

The company’s specialty brands include blu, Kool, Gitanes, Jade, Cohiba, Montecristo, Romeo Y Julieta, Backwoods, Skruf, Golden Virginia, and Drum.

Will Philip Morris Stock Go Up In 2019 (Should You Buy)?

In 2018, Marlboro’s volume outside the U.S. and China (under the aegis of Philip Morris) was 264 billion cigarettes, cementing its position as the number-one cigarette brand worldwide.

Analysts are concerned about regulatory threats to the tobacco industry, but here is what Philip Morris International’s management knows that Wall Street seems to forget: The company is pivoting away from slowing markets to embrace new growth areas.

PM is developing smoke-free and reduced-risk products, such as electronic cigarettes (e-cigs) and a variant called heated sticks. This strategy redirection should pay off over the long haul, making the stock a shrewd buy now.

Philip Morris also is expanding into untapped markets in developing nations, where a rising middle class is drawn to the iconic Western consumer brands that they associate with affluence and status. The most salient example is PM’s Marlboro cigarettes, which are on par with the Apple (NSDQ: AAPL) and Coca-Cola (NYSE: KO) brands.

To be sure, anti-smoking laws are becoming more prevalent in certain emerging nations, especially in cigarette-craving markets such as China and Russia. That is why Philip Morris International is embracing products that actually compete with tobacco, notably e-cigs.

E-cigs are starting to garner more regulatory scrutiny, but they are still less regulated than tobacco products. They aren’t associated with deadly disease as of yet, and they give Philip Morris International a beachhead with a younger, free-spending demographic.

Philip Morris International began selling e-cigs in late 2014, using existing technology that it has since been honing.

An especially hot product (so to speak) for Philip Morris is its IQOS heated stick. About 6.6 million consumers have already switched from cigarettes to this tobacco heating system.

IQOS uses electronics that heat specially designed heated tobacco units. IQOS heats the tobacco just enough to release a flavorful nicotine-containing tobacco vapor but without burning the tobacco.

This makes inhaling the vapor (or “vaping,” as it is called) easier and less harmful. The tobacco in a cigarette burns at temperatures in excess of 600 degrees Celsius, producing smoke with high levels of poisonous chemicals. However, IQOS heats tobacco to much lower temperatures, up to 350 degrees Celsius, without combustion, fire, ash, or smoke. The lower temperature heating provides flavorful heated tobacco, with significant reductions in harmful smoke.

PM’s eager interest in various types of e-cigs isn’t just a logical response to a new competitive threat. The company also views e-cigs as a potential source of new growth that could offset falling cigarette sales in developed countries.

The growing popularity of e-cigs is a major tailwind for Philip Morris that shows no signs of abating, despite desultory noises from regulators. The recent departure of Scott Gottlieb as commissioner of the U.S. Food and Drug Administration (FDA) is a boon for the e-cig market, because Gottlieb intended to crack down on e-cigs, especially underage vaping.

Global e-cig revenue is expected to post multiyear, double-digit growth, a level of prosperity not seen by the tobacco industry since the halcyon days of the 1950s and 1960s, when the “Don Drapers” of the era chain-smoked with abandon almost anywhere they wanted.

According to research firm Mordor Intelligence, the global e-cig market was valued at $10.2 billion in 2017 and should reach a value of $16.8 billion by 2023, for a compound annual growth rate of 8.1% over the forecast period (2018-2023).

Philip Morris and Altria are engaged in a partnership to sell e-cigs. Philip Morris received exclusive rights to sell Altria’s e-cigs outside the U.S., whereas Altria got exclusive rights in the U.S. to sell other Philip Morris-manufactured tobacco products.

One of the surest ways to reap investment profits is to latch onto a fast-rising trend that’s still on the upward slope of the bell curve. The craze for e-cigs fits the bill.

Indeed, Philip Morris vows to transition away from traditional cigarettes to embrace only smoke-free or reduced-risk tobacco products, which would be a huge watershed for the company and the industry. Fear of carcinogenic second-hand smoke is one of the tobacco industry’s worst headwinds.

To be sure, Philip Morris stock has consistently under-performed the market, due to regulatory headwinds, but consumer stocks such as PM should do well as we enter the late stage of economic recovery. PM shares should also gain traction, as its strategic moves bear fruit.

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The forward price-to-earnings ratio of Philip Morris is 15.1, compared to 12.7 for Altria, 10 for British American Tobacco, 9.1 for Imperial Brands, and 17.5 for the S&P 500.

PMI’s dividend yield is a hefty 5.00%. Free cash flow, from which dividends are paid, came in at $8 billion in 2018, up from $7.3 billion in 2017.

Philip Morris may be a sin stock but its income is heavenly — and shares trade at a reasonable valuation compared to the broader market (albeit at a modest premium to its rivals).

Will Philip Morris Go Down In 2019 (Should You Sell)?

To be sure, regulators could always crack down hard on Philip Morris, even in emerging markets. As economies advance, their denizens become more health conscious. Competition from e-cig upstarts also could undermine Philip Morris, even as the company tries to co-opt its rivals in that space.

Tobacco is addictive but consumer tastes are fickle; new generations may increasingly turn their back on the deadly habit. A growing number of investors also object to tobacco stocks on moral grounds. These various trends could catch up with Philip Morris, which will always entail a certain amount of vulnerability because it’s a sin stock.

Interestingly, Philip Morris is shunning one major avenue of potential growth: cannabis. In this video, PMI CEO André Calantzopoulos explains that his company is avoiding pot largely because it’s an international company and not all countries share the same enthusiasm as America and Canada for marijuana legalization.

Overall Philip Morris Forecast And Prediction For 2019

For long-term gains, you should invest in companies that provide products and services that people always want, in good times or bad. People around the world crave nicotine; that’s unlikely to change.

Philip Morris enjoys major exposure to corners of the global economy that are still in growth mode. Although emerging markets aren’t immune from developed-world regulations, they’re still looser. The growing disposable income among their burgeoning middle class means that Philip Morris brands should continue to enjoy demand. Brands such as Marlboro are a symbol (for better or worse) of American affluence.

Philip Morris also offers the potential for capital appreciation. The average analyst expectation is for Philip Morris to generate year-over-year earnings growth of 8.5% next year. Over the next five years, earnings growth is expected to come in at 6.6%, on an annualized basis.

With a hefty dividend yield, a vast and entrenched global presence, and an exciting new product in the form of IQOS under its belt, Philip Morris should light a fire for gains in 2019.

John Persinos is the managing editor of Investing Daily.