Sin stocks include companies that promote or create unethical or immoral products. In an era of "ethical investing," or morality-driven investments, it may seem difficult to consider making room for sin stocks in your portfolio.
However, the 50 largest sin stocks have outperformed the MSCI World Index over the last 43 years, according to UBS NYSE: UBS, which provides financial advice and solutions to private, institutional and corporate clients worldwide.
Let's dig into why you might want to buy sin stocks and the four we've chosen to highlight.
Why Buy Sin Stocks?
Sin stocks, traditionally referred to as gambling, alcohol and tobacco, are resilient amid economic turbulence. During recessions and times of economic instability, consumers still drink alcohol, gamble and smoke.
There's a downside, of course. Unfortunately, anxiety, uncertainty and isolation rose during the pandemic. In fact, alcohol consumption rose among adults over age 30 by 14% during the pandemic and this also resulted in a 41% increase in drinking among women, according to a RAND Corporation study from September 2020. Unfortunately, addictions, spiking relapse and overdose rates also occurred.
Four Sin Stocks to Sneak into Your Portfolio
Let's consider three sin stocks you may want to pop into your portfolio.
Constellation Brands Inc., headquartered in Victor, New York, produces, imports, markets and sells beer, wine and spirits worldwide. The company produces beer under the following brands:
- Corona (including Extra, Premier, Familiar, Light, Refresca, Hard Seltzer brands)
- Modelo (including Especial, Negra, Chelada, Pacifico and Victoria brands)
The company also offers wine through the following brands:
- 7 Moons
- Cook's California Champagne
- Cooper & Thief
- Crafters Union
- Kim Crawford
- Meiomi
- Mount Veeder
- Ruffino
- SIMI
- The Dreaming Tree
- Charles Smith
- Prisoner
- Robert Mondavi
- Schrader
The company also produces spirits under the following brands:
- Casa Noble
- High West
- Mi CAMPO
- Nelson's Green Brier
- SVEDKA
Products go to wholesale distributors, retailers, on-premise locations and state alcohol beverage control agencies.
In the fiscal year 2022, the company reported an EPS of $0.22 and comparable basis EPS of $10.20, including Canopy equity losses of $0.80; excluding Canopy equity losses, achieved comparable basis EPS of $10.99, an increase of 5%.
The company generated strong operating and free cash flow of $2.7 billion and $1.7 billion, respectively, for fiscal 2022. Returns nearly $2 billion to shareholders in share repurchases and dividends in fiscal 2022 and plans $500 million of share repurchases in the first quarter of fiscal 2023.
Gaming is a definite sin stock. Electronic Arts Inc., headquartered in Redwood City, California, develops and sells games, content and services for game consoles, PCs, mobile phones and tablets worldwide. Electronic Arts offers games under the following brands: Battlefield, The Sims, Apex Legends, Need for Speed and Plants vs. Zombies as well as FIFA, Madden NFL, UFC, NHL, Formula 1 and Star Wars brands (the company licenses its games to third parties to distribute and host its games).
The company also provides advertising services through digital distribution and retail channels and through mass market retailers and specialty stores.
Net bookings for the trailing 12 months was $7.254 billion, up 22% year-over-year and active accounts grew more than 540 million unique active accounts.
Net cash provided by operating activities was $1.534 billion for the quarter and $1.826 billion for the trailing 12 months. The company repurchased 2.4 million shares for $325 million during the quarter, bringing the total for the last 12 months to 9.4 million shares for $1.3 billion. The company also paid out a cash dividend of $0.17 per share during the quarter.
Could you consider shares of snack-related companies as "sin stocks?" Sure — sugar!
Mondelez International Inc. (formerly known as Kraft Foods Inc.), headquartered in Chicago, manufactures and sells snack food and beverage products throughout the world, such as cookies, crackers, salty snacks, chocolates, gums, candy, powdered beverage products and more.
Brands include:
- Cadbury
- Milka
- Toblerone
- Oreo
- belVita
- Halls
- Trident
- Tang
The company sells to supermarket chains, wholesalers, supercenters, convenience stores and other food outlets.
In the full year 2021, Mondelez saw net revenues increase 8.0%, driven in part by organic net revenue (increase of 5.2%). Diluted EPS was $3.04, an increase of 23.1%. Adjusted EPS was $2.87, up 9%. Cash provided by operating activities was $4.1 billion, an increase of $0.2 billion versus prior year and free cash flow was $3.2 billion, an increase of $0.1 billion.
The company's capital return to shareholders was $3.9 billion. In Q4, net revenues increased 4.9%, driven by organic net revenue growth of 5.4%.
Diluted EPS was $0.71, down 11.3% and adjusted EPS was $0.71, up 9.1%, and in Q4, return of capital to shareholders was $0.8 billion.
The Hershey Company, headquartered in Hershey, Pennsylvania, may represent one of the most prominent "sin stocks" — chocolate. manufactures and sells chocolate and other confectionery products and snack items. You've heard of most of the brands: Hershey's, Reese's, Jolly Rancher, Almond Joy, Cadbury, Kit Kat, Payday, Rolo, Twizzlers, Whoppers, York, Ice Breakers, Breath Savers, Bubble Yum, SkinnyPop, Dot's Homestyle Pretzels and more.
The company's products go into wholesale distributors, chain grocery stores, mass merchandisers and more. The company was founded in 1894 and is headquartered in Hershey, Pennsylvania.
In Q4 2021, the Hershey Company reported consolidated net sales of $2,326.1 million, an increase of 6.4% and reported net income was $335.6 million, or $1.62 per share-diluted, an increase of 16.5%. Adjusted earnings per share increased 13.4%.
In 2021, the company saw consolidated net sales of $8,971.3 million, an increase of 10.1%. Reported net income was $1,477.5 million, or $7.11 per share-diluted, an increase of 16.4%.
Think You Should Add Sin Stocks to Your Portfolio?
Even if they sound "icky," it's a good idea to consider adding sin stocks to your portfolio. They can insulate against fluctuations in the economy and can give your portfolio an edge. Always remember that you can invest in more innocuous stocks, such as companies that produce chocolate and sugar products.
Before you consider Hershey, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Hershey wasn't on the list.
While Hershey currently has a "Reduce" rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
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