Thetobacco stocks are included in the mutual-fund investments offered toemployees in CVS Caremark's 401(k) and employee stock-ownership plans.The tobacco-related stocks are less than 1 percent of the $6 billion ininvestments on behalf of more than 200,000 employees.
Theplans have investments in major U.S. tobacco companies R.J. ReynoldsAmerican Inc.; Lorillard Inc.; Imperial Tobacco Group; Altria Group, theparent company of Philip Morris; and Philip Morris International.
CVSCaremark in a prepared statement Tuesday said that by law its401(k)-plan investments are made by fiduciaries independent of corporateconsiderations and the decisions are made to "promote the interests ofplan participants and their beneficiaries."
"We expect that ourdecision announced last week to eliminate sales of tobacco in our storeswill invigorate the exploration of additional investment alternativeswith potential socially beneficial impact," the company said.
CVSCaremark, based in Woonsocket, R.I., drew widespread praise when itannounced Feb. 5 that it would stop selling tobacco products Oct. 1 atits 7,600 drugstores. The move is expected to cost CVS $1.5 billion inannual tobacco sales and another $500 million in related sales.
It will be the first major pharmacy chain to stop selling cigarettes nationwide.
"Thefeedback has been overwhelmingly positive," said Larry Merlo, CVSCaremark chief executive, during an earnings conference call withanalysts Tuesday.
Divestiture of tobacco stocks has not been afront-burner issue for well over a decade. Some state pension funds anduniversities chose to cut their investments in tobacco stocks during the1990s.
In 1996, the American Medical Association urged investorsto sell their shares in tobacco companies and mutual funds with tobaccosecurities.
Jay Epstein, a retired Phoenix obstetrician, said it'sa contradiction for CVS Caremark to stop selling cigarettes whiletobacco stocks make money for its employees and retirees.
"I'm not for smoking, don't get me wrong," said Epstein, adding that CVS Caremark should not make tobacco stocks available.
Patrick Reynolds, executive director of the Foundation for a Smokefree America, based in Playa del Rey, Calif., agreed.
"I think it would be a good idea for CVS to divest their tobacco stocks," he said.
Heis the grandson of R.J. Reynolds, founder of the tobacco company of thesame name. Reynolds' brands include Camel, Winston and Salem.
"Ido think the move to stop selling tobacco shows great vision andleadership," Reynolds said of CVS. "I think it will bring themshoppers."
The CVS report on its 401(k) and employee-stock planslist investments as of Dec. 31, 2012. The report was filed with theSecurities and Exchange Commission in June.
It shows that CVSCaremark's 401(k) and employee stock-ownership plans had 183,000 sharesof Altria Group stock, valued at $7.25 million, and 81,000 shares ofPhillip Morris International, worth $8.2 million.
CVS plans havesmaller stakes in Imperial Tobacco, with 12,900 shares valued at$999,621; 3,050 shares of Lorillard, worth $355,844; and 8,015 shares ofReynolds American, valued at $332,061.
The combined value was more than $17 million but it has fallen to $14 million based on current stock prices.
Phillip Morris' brands include Marlboro, Virginia Slims, Parliament, Chesterfield, Basic and Merit.
Lorillard is the maker of Newport, Kent, True and Old Gold cigarettes.
Imperial Tobacco Group sells Cohiba and Montecristo cigars along with Gitanes and other specialty cigarettes.
CVSCaremark on Tuesday reported $126.8 billion in annual revenue, up 3percent from the previous year. Annual earnings per share were up 15.7percent to $3.96.
"We do not see this (tobacco sales ban) having anegative effect on our pharmacy business," Merlo, the chief executive,told analysts.
Helena Foulkes, CVS/pharmacy president, said thecompany's stores are not a key destination for tobacco buyers, notingthat only 4 percent of cigarette sales are in drugstores.