The Best Stock of the Last Seventy Years Was a Cigarette Company

In 1957 the S&P 500 was published for the first time. Jeremy Siegel later asked a simple question: if you had bought all 500 stocks and gone to sleep, which one would have treated you best? The answer was Philip Morris. A cigarette company.

Not an oil major. Not IBM. Philip Morris compounded at 19.75% a year through 2003, against 10.85% for the index itself. Compounding — earnings that earn on themselves — ran nearly nine points a year hotter, for forty-six years, from the least fashionable business in America.

Siegel’s explanation is the part that matters. It is not “cigarettes are a great business.” It is that the market kept pricing the company for lawsuits and decline, and the company kept paying dividends anyway. Every quarter, those dividends bought more shares at prices set by people who wanted out.

Growth is not the same thing as return. You get paid for the gap between what a business earns and what the crowd expected. That is a seventy-year-old lesson. What changed is that the category stopped being a museum piece.

What the news turned up

The Journal ran the sector on July 10 under a headline that did the work for us: tobacco stocks are coming in from the cold. British American Tobacco has roughly doubled in two years — a better run than the Magnificent Seven. Altria is up more than 50%.

The reason is not nostalgia. North American cigarette volumes have fallen by a third since 2020, per Jefferies. The money is moving to pouches and vapes — a different business with different economics.

Philip Morris is furthest along: 41% of 2025 sales were already non-combustible — IQOS abroad, Zyn in the U.S., where PMI sells no cigarettes at all. Its pouch business grew 36% last year. Pouches went from 4% of the U.S. oral nicotine market in 2019 to 44% five years later.

BAT is where PMI was in 2019 — about a fifth of revenue smokeless, targeting half by 2035. Its U.S. pouch share jumped from 6.7% to 16.2% in a single year on Velo Plus.

And the buyers are coming back. In 2025, 60% of investors excluded tobacco, down from 66% the year before. Funds once forbidden to own these names are, one mandate at a time, allowed again. That is a slow, mechanical bid.

What we did about it

On July 10 we wrote that doubles get evaluated, not chased. The evaluation is finished. We bought — small, deliberately, funded from cash rather than by selling anything we believe in.

The sizing is the argument. A 1–2% position is big enough to show up in a statement and small enough that being wrong is an inconvenience, not an event. Cash yielding roughly 4% was the one holding with no upside case at all.

Wherever a client mandate prohibits tobacco, it is excluded automatically. No exceptions, no conversations. A screen a client asked for is not a suggestion.

What would make us wrong

The regulatory tailwind is political, and political things reverse. The FDA’s new guidance — letting companies sell new pouches and vapes while applications are still under review — is the single biggest driver of the re-rating.

The Journal reported that Reynolds American donated $5 million to a political group aligned with the President shortly before flavored-vape restrictions eased. Our conclusion: a rule written in a year can be unwritten in a year.

Second, the volume math is unforgiving. These companies hold revenue steady by raising prices on a shrinking pool of smokers. The smokeless business has to catch the fall. PMI largely has. BAT has not yet.

Third, and not a financial point: nicotine is addictive, pouches carry real health concerns, and roughly two-thirds of vapes sold in the U.S. are illicit imports. Anyone who would rather not own this is right to say so, and we will build the plan without it.