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Cramer’s Top Tobacco Plays

Despite the health risks from smoking, sky-high taxes and choking regulation, tobacco companies have weathered the storm regardless. And their customers just keep coming back. That’s why Cramer thinks one of these stocks could make the perfect addition to your portfolio.

This recommendation, and specifically he likes Altria and Philip Morris International , was a part of his series on vice and vanity. He thinks the two themes offer some of the best long-term investing opportunities out there, and he highlighted a host of stocks—Allergan and Medicis among them—for viewers to consider.

“There are a lot of great vices out there,” Cramer said Thursday, “but from a moneymaking perspective, smoking is the most consistent moneymaker.”

Why Altria and Philip Morris, though? Both are recession-resistant plays with high dividend yields, a must-have combination for any portfolio. Plus, these are the companies with the most proven management, strongest fundamentals and the best track records, meaning they probably won’t “surprise you with out-of-the-blue bad news,” Cramer said, or flub up their execution.

Cramer does like Altria over PM, though the latter isn’t too far behind. But Altria controls more than 50% of the US cigarette market, as well as 28% of SABMiller, the world’s second-largest brewer. Sure, 2009’s federal excise tax on cigs hurt volumes at first, but the company has since bounced back. And the litigation that once plagued this industry seems to be a thing of the past. In the meantime, Altria is taking market share and expanding into new businesses, thanks to the purchase of UST, the top US smokeless tobacco player.

As for Philip Morris, which was spun off from Altria in 2008, this company offers you a similarly high dividend yield, and it controls 15.6% of the $5.5 trillion international cigarette market. And the international diversification means PM is less susceptible to the US’s heavy regulation, in addition to offering a play on the weak dollar. Earnings at the company are growing at a double-digit rate, too.

“Smoking’s a vice that's not going away anytime soon,” Cramer said, “and the best way to play the business is with Altria, followed by Philip Morris International.”

When this story published, Cramer's charitable trust owned Altria.

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