For the most part, we all have the same basic beliefs between good and evil and right are wrong. In the investing world, there are companies that toe the line in terms of ethics. Most investors know these as sin stocks.
They tend to make up the industries around smoking, drinking, guns, and gambling. Depending on your ethics, you might be OK investing in these companies. If you are, then this post will highlight 3 such sin stocks that should be on your radar.
3 Sin Stocks You Need To Be Aware Of
Boston Beer Co (NYSE: SAM)
When it comes to sin stocks, the first thought on most investor’s minds is beer. It’s no secret that consumers are in love with craft beers. There has been a shift in the beer market over the last few years that has seen people move away from the traditional large brewers and move more towards small, craft beers.
In addition to consumers wanting craft beer, they want local craft beer. This is what has been hurting Boston Beer of late. While revenue climbed 2% and net revenue climbed 38% last year, there are still many challenges that Boston Beer faces.
Namely that depletions dropped by 1% last year. As a result of the struggles, the stock price has been cut in half since its high in January of 2015. But there is some hope for Boston Beer.
First, it’s Twisted Tea and Truly Spiked brands are performing well. If these can continue to thrive, the company has some time to get the Sam Adams brand back into consumer’s minds and drinking habits.
Second, it can grow with the local craft brew excitement and increase sales. But instead of introducing new brands, it needs to start buying small, independent brewers.
If Boston Beer does this, then the stock price will rise as a result. The problem is that the company has not made any indication that it will go this route. In recent guidance, Boston Beer is doubling down on its current strategy of trying to overcome the challenges by looking within.
So you have some time to get into this stock before it takes off. The day will come when Boston Beer will realize they need to start acquiring small, independent brewers and when they day comes, you should already be in for the ride.
Diageo (NYSE: DEO)
While beer is the first thought when it comes to sin stocks, not far behind is hard alcohol. And Diageo is the name to own in this segment. They own many of the top labels including Smirnoff, Crown Royal, Ciroc, Johnnie Walker and Ketel One to name a few.
In addition to owning these top brands, there are other benefits to owning Diageo. The biggest is its dividend which is currently yielding close to 3%. The company has been raising its dividend for 16 years straight and there is no sign of slowing down.
When it comes to growth, Diageo is well positioned. It recently reported a 28% rise in operating profit and saw sales volume increase 2% as well. They expect sales to grow in the mid-single digits for the coming year as consumers continue to imbibe in Diageo’s brands.
Finally, there is the impact of Brexit. Diageo is based in London, but most of its sales come from outside the UK. With a lower price for the pound, earnings should see an added spike. All this leads to Diageo being one of the sin stocks to own.
RCI Hospitality Holdings, Inc (NASDAQ: RICK)
When talking about sin stocks, most investors overlook RCI Hospitality Holdings. In fact, if you stumble across it, you would think it is just a restaurant since it is often categorized with those types of companies. But RCI doesn’t run restaurants. They run gentleman’s clubs.
While it might seem like this isn’t the best place to invest your money, you are wrong. Last year, RCI underwent a capital allocation plan and it is paying off. In the recently released first quarter results, RCI saw free cash flows increase 33% and diluted earnings per share increase 20%.
Future growth is expected to continue as well as the company sticks to the capital allocation plan. They will work to further improve operating margins and continue with their share buyback program. In addition, they will continue to increase their dividend.
While the yield on the stock is just under 1%, it is nice to see them work on raising it. But for most investors you are buying this stock for the growth of the stock price, not the dividend.
In all, sin stocks are a profitable investment if your ethics don’t stop you from investing in these companies. Assuming your ethics don’t come into play, then of all the sin stocks out there, these 3 are worth a look.
As mentioned, both RCI and Diageo are interesting buys now while with Boston Beer you could just keep it on your short term radar before jumping in.
This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.
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