Warren Buffett’s Top Plays: #5 RJ Reynolds

Buffett invested in R. J. Reynolds Industries, the largest tobacco company in the United States, in the early 1980s. The company was diversified, with 45% of its revenue and 20% of its profits coming from businesses other than tobacco. This included the fast food chain KFC. The investment was made through Berkshire and Blue Chip Stamps, and Berkshire’s share in the purchases amounted to $270 million, representing 34% of Buffett’s net worth at that time. Reynolds was purchased at a low multiple of PE 4. It is assumed that Buffett sold the shares in 1984, bringing the returns of the deal to 50%. R. J. Reynolds had a dominant market position, with approximately one-third of the US market, and the highest return on capital of any tobacco company at the time. In June 1985, R. J. Reynolds announced that it would purchase a large food company, Nabisco Brands, for $4.9 billion.