Setting long-term goals is the piece of advice that you’ll probably find on the first page of every book and blog covering investing for absolute beginners. Unfortunately, no investor is a fortune teller able to see through the veils of the future and predict which stocks issued by which company are a sound investment in the long run. There is, in turn, one category of stocks that almost always carries the potential for making a long-term profit. The only problem with it is that you need to have the guts to invest in it. Prospective investor, meet “sin stocks”.
What are sin stocks?
“Sin stocks” are publicly traded companies that are involved in or associated with industries that are considered immoral or even unethical. The sectors where you can find such “sinful” investment opportunities range from alcohol and tobacco companies, weapons manufacturers, gambling businesses, and industries aimed at adults only. The stance of investors on some of these companies can be diverse – for example, breweries and winemakers are usually not considered “sinful” while those producing spirits are. Also, military contractors are a big “no” for some while being the embodiment of a patriotic business for others.
A few examples of such “sinful” companies include weapons manufacturers and military contractors like American Outdoor Brands Corp (formerly Smith & Wesson Holdings – NASDAQ: AOBC) and General Dynamics (NYSE: GD), alcohol manufacturers like Anheuser-Busch InBev (EBR: ABI) and Heineken (AMS: HEIA), gambling businesses like the Las Vegas Sands Corporation (NYSE: LVS) and Caesars Entertainment Corporation (NASDAQ: CZR), perhaps even marijuana companies like Weekend Unlimited Inc (CNSX: POT) and Aurora Cannabis Inc (TSE: ACB).
If they are unethical, why should we invest in them?
Well, when it comes to the ethics of one stock or another, a lot depends on the moral code of the individual investors. For some, profits trump ethics, while for others, morality trumps everything. For some, investing in Altria stocks (NYSE: MO) is not a problem, while others wouldn’t touch them with a stick. It all depends where the individual investor draws the proverbial line in the sand.
The problem with sin stocks is that they tend to be profitable in the long run. Investing in them is a sound decision in the long run because, unless a major change in policies happens in one of their biggest markets, their growth is almost always a certainty. The demand for the products and services offered by these companies is almost constant – people smoke tobacco and pot, drink alcohol, gamble, and give in to their carnal instincts as well – and they are pretty recession-proof, too. Besides, the heavy regulations and the social and regulatory risks associated with these industries usually prevent competitors from entering these markets, which ensure solid profits for the companies – and the investors trading their shares.