(FORTUNE Magazine) – Long tamped down by legions of legal and political threats, shares in cigarette companies are on the rise now that menaces such as increased federal taxes and an FDA crackdown seem to be fading. That's great news for investors in companies like Philip Morris, where Kraft General Foods brands such as Maxwell House and Velveeta, not to mention Miller beer, still take second place to Marlboro and other cigarettes; smokes contribute 55% of the company's $9.3 billion in total operating income. The Marlboro Man, in fact, is even firmer in the saddle than ever, with a record 28% U.S. market share. Sibling brands Merit and Virginia Slims are also thriving. Sure, U.S. sales of cigarettes will decline long term, but stiffer pricing is yielding bigger margins. Analyst Barry Ziegler at AG Edwards estimates domestic tobacco earnings at Philip Morris will be up an enviable 15% this year. Including the food operations, Ziegler looks for more than 12% earnings growth over the same period. He thinks the $59.50 stock, trading at just 9.8 times 1995 earnings, could be $70 by the end of next year. Meanwhile, more fans in Western Europe, Japan, and Latin America are turning to smoother U.S. blends, maintaining the double-digit growth rate that tobacco company earnings have been enjoying. This benefits not only Philip Morris but also No. 2 U.S. cigarette maker RJR Nabisco, whose Camel, Winston, and Salem premium brands are thriving in offshore markets. At home, estimates Sanford Bernstein's Gary Black, RJR's tobacco profits ( will be up more than 20% over last year's depressed levels, reaping the same benefits as Philip Morris. Says Black: "It surprised everybody, including us, how quickly the industry got back into the oligopolistic pricing mode." Black thinks RJR management will institute RJR's first-ever dividend this fall, which will give its stock price an extra lift. Of even more interest to investors, Black expects the company to issue more shares and sell 15% to 20% of cookiemaker Nabisco before the end of the year. "Everyone knows Nabisco, along with Pepsi's Frito-Lay, is one of the top two food companies in America," he says. "This might convince the market to put a higher multiple on those assets." In other words, he thinks Wall Street will climb aboard and more than compensate for any dilution in shares. The fact that Kohlberg Kravis Roberts, the buyout firm, is unloading half its 40% stake in RJR to buy Borden doesn't faze Black. "KKR is using RJR stock as currency in the deal. So it has every incentive to keep that currency level up." Overall, he thinks RJR's $6.63 stock, 11 times his 1995 earnings estimates, will reach $8 by the end of 1995. Other tobacco stocks have different profiles from the big two, but that doesn't mean they might not be smart buys. For example, Diana Temple at Salomon Brothers likes American Brands, the diversified outfit that will sell you life insurance as well as tobacco and booze. Tobacco profits are strong at Gallaher, its international subsidiary that sells premium brands like Benson & Hedges and Silk Cut. The stock should also get a kick from the pending sale of the company's American Tobacco unit (Carlton and Pall Mall) to Britain's BAT Industries, which already owns Brown & Williamson (Kool and Raleigh). This will release American Brands from any potential product liability, a risk analysts think overblown but still an issue that has been factored into all stocks with tobacco exposure. Temple estimates American Brands stock, now $35.13, could be $40 in a year.

Those who don't like to puff on their tobacco might chew on UST, the purveyor of smokeless tobacco products like Copenhagen and Skoal, with some 85% of the market. Roy Burry at Kidder Peabody looks for operating profit to be up 12% to 15% this year, while the downside has limited risk because of the captive market. "Strong earnings growth and low risk -- you don't get that very often," he says. He thinks the $28.75 stock will be at least $33 in a year.