Breakfast on Wall Street: Smoke Signals

Inquiry Monday

Is it a good idea to invest in the tobacco sector in 2024?

· Yes (consistent and attractive dividends)
· Maybe (growth options through new products/trends)
· No (too much risk and falling market)
· N/A (morally wrong to invest in the sector)

Take the survey here and don’t forget to share your thoughts in the WSB comments section.

Smoke signals

The FDA has approved the first tobacco-free e-cigarette products for sale in the United States, a decision involving activists, health advocates, lobbyists and investors. Developments in the tobacco industry have been tense for decades and have been renewed in recent years around new generation products. The latest FDA approval will apply to four menthol vaping products from Altria (MO)-owned NJOY, known for brands like Marlboro, Parliament and Virginia Slims under its Philip Morris USA subsidiary.

Quote: “We are a data-driven agency and we will continue to track scientific data to inform our review of tobacco marketing applications,” said Matthew Farrelly, director of the Office of Science at FDA’s Center for Tobacco Products. “Based on our rigorous scientific review, in this case the strength of evidence demonstrating the benefits to adult smokers of completely switching to a less harmful product was sufficient to outweigh the risks to youth.”

Flavored e-cigarettes, including those containing menthol, were already banned in the United States in 2020, amid growing vaping use among youth and young adults. Their popularity has since waned, but about 10% of high school-aged teens and nearly 5% of middle school students still use vaping products, according to the CDC. Many flavored products also remain available for purchase due to loopholes, a flood of illegal imports and lack of oversight — all while the FDA reviews myriad applications.

Talking about tobacco: During the company’s latest earnings conference call, Altria CEO Billy Gifford said the company is seeing “continued initial momentum from NJOY” and will “continue to roll out the first NJOY’s retail program…and would expand the brand to 100,000 stores by the end of the year.” The pivot to alternative products saw Altria buy NJOY for $2.75 billion, after its $13 billion stake in Juul turned sour and ultimately prompted a divestment due to vaping-related lawsuits and liabilities of minors. Investing in tobacco or nicotine stocks still divides the sector, with advantages such as high dividend yields, considered recession-proof, and disadvantages such as legal risks and ethical concerns. Complete the WSB survey.

AI Partnerships

Increased pressure is being put on Apple (AAPL) after being accused of violating EU technology rules. The iPhone maker is reportedly in discussions with Meta (META) about a partnership involving integrating parent Facebook’s generative AI model into Apple Intelligence. This could help companies catch up in the AI ​​race, with Apple already working to integrate a variety of generative AI offerings like OpenAI’s ChatGPT integration. Speaking of AI partnerships, TikTok owner ByteDance (BDNCE) is collaborating with Broadcom (AVGO) on an advanced AI chip in a bid to ensure stable supply amid US-China trade tensions increasing. (64 comments)

Competitor compensation

Intercontinental Exchange (ICE), which operates the New York Stock Exchange, plans to seek regulatory approval to clear U.S. Treasuries through its existing clearinghouse, ICE Clear Credit. Discussions are ongoing with the SEC as the company prepares its review application. “We’re trying to be as least disruptive as possible (by using) an entity that we’re familiar with and has the right records,” said Chris Edmonds, president of fixed income and data services at ICE. Other companies that have expressed interest in offering central clearing services following the new SEC rules include the London Stock Exchange (OTCPK:LDNXF) and CME (CME).

Discussion on rates

Seeking to avoid an escalation of trade conflicts, China and the European Union have agreed to hold discussions on the latter’s anti-subsidy investigation into Chinese electric vehicles. Observers reportedly said Beijing wants the EU to drop its tariff decision before July 4, warning that “increasingly protectionist measures will certainly trigger countermeasures from China.” The bloc’s proposed tariffs for electric vehicles of up to 38.1% will take effect next month and are expected to be finalized on November 2. Note that 100% duties are imposed on Chinese electric vehicles in the United States, while Canada is reportedly considering similar tariffs. measures. (2 comments)