Quality tobacco as the economy goes up in smoke

Readers may remember the old TV adverts when some hapless man lit a Hamlet cigar having resigned himself to misfortune. It would seem policy-makers are facing many such moments as the economic situation deteriorates. For investors who can square away any moral concerns about tobacco companies then it is shares in these businesses that could provide some respite as the economy seemingly heads towards recession. Hamlet is a brand owned by the Gallaher Group division of Japan Tobacco, but their UK-listed competitors are among the shares topping our quality screen. Imperial Brands (IMB) is one of only two UK large caps to score full marks. British American Tobacco (BATS) also  ranks highly, failing only the return on equity growth test. This is cautionary - the industry undoubtedly faces long-term headwinds - but as a cyclical defensive play, there may be a few more puffs left on the metaphorical cigar. 

The share prices of a couple of pandemic darlings have come off significantly in recent months but they still rank reasonably well on our screen. Future Publishing (FUTR) has seen its share price drop almost 40 per cent in three months. Discretionary spending can be expected to take a hit given the rising cost of living and likelihood of recession, so this is more  a business to be kept on a watch-list for the next cycle. Although, stock markets tend to recover ahead of the economy so investors should be on their toes when quality companies become cheaper. 

That certainly applies when it comes to companies that pass all our quality tests on our US screen. The likes of Apple (US:AAPL), Microsoft (US:MSFT) and Nvidia (US:NVDA), which still pass all of our tests despite significant  three-month share price falls. Patterns of volume suggest further down legs of the bear market to come, however, so now isn’t the time to be buying a dip in these tech stocks. Still, quality indicators are  worth watching to be ready.