SAVVY CONFIDENTIAL / A Briefing for Investors

The last two weeks have brought some much-needed good news for investors in U.S. tobacco stocks.

Philip Morris Cos. and other cigarette makers scored legal victories against union health-benefit funds and the country of Guatemala, which sought compensation for the costs of treating sick smokers.

Brown & Williamson Tobacco Corp.’s chief executive, Nick Brookes, said the industry will fight a similar effort by the U.S. The Justice Department is suing to recoup the government’s treatment expenses, estimated at more than $20 billion a year.

Perhaps best of all: The shares, long a drag on investors’ portfolios, have rebounded a bit from their lows. Several are showing gains for this year, while benchmark stock indexes have faltered.

Further gains are likely once the industry gets past a class-action suit in Florida, said Marc Cohen, an analyst at Goldman Sachs & Co. Cigarette makers face a potential damage award of $100 billion in that case.

“People became very pessimistic about the legal outlook late last year,” said Cohen, who favors Philip Morris and Loews Corp., parent company of cigarette maker Lorillard Inc. “I would expect to see a quite remarkable change in the scenery in the next 12 to 18 months.”

Philip Morris has climbed 13% since Dec. 27, when it reached its lowest close since March 1995. The stock closed Wednesday at $24.25, up 13 cents on the New York Stock Exchange.

R.J. Reynolds Tobacco Holdings Corp. has rebounded even more strongly. The stock is up 22% from its Dec. 28 closing price of $16, the lowest since its spinoff in June. After easing 44 cents Wednesday to $19.56 on the NYSE, it is up 11% this year.

Last year, the S&P; index of tobacco stocks--consisting of Philip Morris and UST Inc.--ranked second-worst among 89 industry groups, falling 54%. But this year, the twosome is up 4.6% as the blue-chip S&P; 500 is down 2.5%.

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Catching Fire--or Brief Spark?

Most tobacco stocks have recovered a bit from their late-December lows, but their longer-term performance remains miserable.

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Ticker Wed. YTD % 52-week Company symbol close change return R.J. Reynolds RJR $19.56 +11.0% -39.3%* Philip Morris MO 24.25 +5.4 -52.9 UST UST 26.25 +4.2 -17.5 British American BTI 10.63 +3.7 -47.9 Loews LTR 59.25 -2.4 -39.8 Brooke Group BGL 14.31 -4.2 -31.1 S&P; 500 index SPX 1,432.25 2.5 +17.0

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*Since June 1 spinoff

Sources: Times research, Bloomberg News