During periods of economic instability, as the world is facing right now, it’s always possible that a stock market crash could happen.
We’re currently in a cost-of-living crisis, which means affording the basics for many becomes tougher. Ultimately, this means that people become more cautious with their spending.
However, some industries continue to see strong demand during these periods. Unfortunately, tobacco is one of the products that people don’t cut out when finances are stretched.
That’s why British American Tobacco (LSE:BATS) might look like a great defensive stock. But is it worth investors who don’t have an ethical objection considering its shares?
Recession-resistant
The obvious problem with smoking is that it’s unhealthy… and highly addictive. But that means its consumption remains strong in economically tough times.
With many smokers using it as a stress reliever, it creates an environment where British American Tobacco should thrive.
That said, even if the company copes well during stock market crashes, there are a lot of problems it faces in the future.
A smokeless world
Over time, the number of smokers in the world is slowly extinguishing. For example, in the UK, 45% of the population were smokers in the 1970s. That figure stands at only 10.6% today.
And new legislation will ban selling tobacco to anyone born during or after 2009.
This doesn’t bode well for British American with tobacco being its core product. This has been reflected in its results, with revenue falling 1% in 2025. Moreover, the company expects cigarette volumes to fall 2.5% for the whole sector in 2026.
The good thing is that the firm is trying to pivot away from its reliance on tobacco.
Attempting to adapt
British American Tobacco has recognised that the future of its cigarette sales looks bleak. So, it’s been reacting by ramping up its non-combustible offerings.
The company is actively investing in expanding its alternative products. Vuse and Velo are two of these products that have now become market leaders in the vaping and nicotine pouches sectors, respectively. The firm aims for new-category products to account for 50% of revenue by 2035.
In a release about the first half of 2026, it said:
- New category revenue is accelerating, which has been led by Modern Oral and Vapour, and the company expects mid-teens revenue growth for this in 2026.
- Velo is continuing to deliver excellent revenue growth globally.
This shows that the firm is making good progress toward its aims, with sales of non-combustibles in the first half of 2026 so far exceeding expectations.
This segment is also taking a growing share of its revenue, now accounting for 18.2% of it, based on its 2025 results.
Now what?
There’s no doubt that the company’s shares are a good choice to consider during economically tough times.
However, as a long-term investment, I’m not convinced right now. Yes, non-combustible revenue is growing and becoming more significant, but it’s still only 18.2% of total revenue. The firm is still significantly short of its 50% target, and regulation is also looming over non-combustible products.
The remaining 81.2% of revenue still faces significant challenges. That’s why investors may prefer to look at defensive stocks that don’t face as many difficulties ahead.
Should you invest £5,000 in British American Tobacco P.l.c. right now?
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Muhammad Cheema does not hold any positions in the companies mentioned.
