Many think of Reynolds American, Altria Group, and Philip Morris when referring to the tobacco stocks, but the $2.7B Miami, FL based Vector Group is often left out of the discussion. Vector is 4th largest cigarette manufacturer under discount brands including Liggett, Pyramid, Grand Prix and even an e-cigarette called “Zoom”. Along with their tobacco portfolio, they also own 70.59% of the high-end real estate firm Douglas Elliman Realty (as seen on the Bravo realty show Million Dollar Listings New York).
Given the resiliency in the higher end housing market and recent consolidation among U.S. tobacco companies (Reynolds finalized their acquisition for Lorillard this month), I would still look for the 7% dividend yielder to see gains later this year. Their chairman of the board, Bennett LeBow, reported an 8% stake in the company on May 26th. Analyst coverage is limited on the under the radar stock, but Oppenheimer has had an outperform rating and a $25 price target since June 5th of last year (reiterated the stance in March).
VGR had been trading in an ascending triangle for the last several months, but the stock is now breaking out above the $22.50 resistance level. This bullish price action is even being confirmed by the secondary indicators, which could lead to $25+ by as early as August. For those looking at longer-term stock positions, consider using an initial stop loss under the 40-week simple moving average at $21.29.
Unusual Options Activity
On June 17th, more than 2,500 Aug $22.50 calls traded with the majority being purchased for $0.75. Call activity was 13 times the average daily volume and the call to put ratio was 65:1. This action follows the 2,500+ that were bought on March 25th (trading for $0.70-$0.80).
Vector Group Options Trade Idea
Buy the Aug $22.50 call for $0.85 or better
Stop loss- None
1st upside target- $1.70
2nd upside target- $2.50
