Filed Under:
Tickers in this Article: MO, GD, LVS, RTN, UST
Want to invest in a company that stands a solid chance of surviving in an economic slowdown and also fares well during good economic times? Sin stocks offer this great combination, and all you have to lose is your soul.

What is a Sin Stock?
Companies that make or deal in alcohol, tobacco, pornography or weapons related products are all typically defined as "sinful companies". These types of stocks can be somewhat more sheltered from the business cycle. It doesn't matter if times are good or bad, history has taught us that people will always find money to spend on alcohol, cigarettes and adult entertainment. (To learn more, read A Prelude to Sinful Investing.)

If nothing else, adding sin stocks to one's portfolio may make it more defensive and help it weather a market downturn. Let's have a look at some of this week's top contenders:

Sinful Stock Selection


Company
Market Cap
Altria Group (NYSE:MO)
$42.9B
General Dynamics (NYSE:GD)
$36.1B
Las Vegas Sands (NYSE:LVS)
$14.6B
Raytheon (NYSE:RTN)
$24.9B
UST Inc. (NYSE:UST)
$7.8B

Good Ol' Smoky
I know about the Surgeon General's warning and I am not too crazy about breathing in second hand smoke. I've also seen the price of a pack of cigarettes skyrocket in recent years. This should all be bad news for the tobacco industry, but I don't think people are about to stop smoking soon. According to Morbidity and Mortality Weekly Report, an estimated 20.8% (45.3 million) of U.S. adults were current cigarette smokers in 2006.

Enter Altria maker of cigarette brands that even non-smokers have likely heard of including Marlboro, Parliament and Virginia Slims.

Love it or hate it, there is no denying Altria is a survivor. According to the company website, Altria's operating companies have roots that stretch back well over 150 years in some instances. Tobacco companies in general seem to be under the constant threat of litigation, but I think Altria will continue to thrive.

At present Wall Street expects the Virginia-based company to earn $1.67 per share this year and $1.85 per share next. That's impressive given that the shares can currently be had for under $21 a pop. Moreover the stock pays a dividend. The current yield is 5.5%. (To learn more about the price-to-earnings ratio, check out our P/E Ratio Tutorial.)

The downside
The potential for litigation will always be a risk with Altria. In addition, if the domestic economy does rebound, some investors may move away from sin stocks and into more traditional growth plays.

Bottom Line
Sin stocks are by no means guaranteed to generate superior market returns. However, many believe them to be a safe haven, particularly during an economic downturn. What do you think of investing in sinful stocks? Are any of these sinful stocks prudent investments, even if some may consider them socially distasteful? Join in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.

comments powered by Disqus

Trading Center