If You Want To Outperform, Buy Big Tobacco

The tobacco industry is probably one of the market's most controversial sectors. Many investors choose to stay away due to the health implications associated with smoking. However, tobacco companies are, in many ways, model companies. They’re well managed; work with shareholders interest in mind; have wide profit margins; strong free cash flows; pricing power; valuable brands and loyal customers (smokers will usually stick to their favorite brand of cigarette). Of course, tobacco is addictive, so the tobacco industry does have what some might call an unfair edge over other sectors.

Still, for those investors looking for quality and growth over value (personally I like to have a basket of long-term holdings focused on quality and income alongside a value portfolio),...