Unless a lump of coal is your idea of a good Christmas gift, it pays to be nice rather than naughty around this time of year. You'll just have to hope that Santa isn't checking your stock portfolio, however, as the "naughty stocks" are doing quite well lately.

The term "sin stock" is used loosely, but it usually refers to companies that engage in the sale of weapons, alcohol, gambling, tobacco, or pornography. Over time many investors have taken a liking to sin stocks because these stocks are seen as sheltered from the business cycle and the whims of the market. Basically, in good times or bad, people will still, smoke, drink, gamble, shoot each other, or, well, you know...

With that in mind, below is a list of five sin stocks worthy of follow-up research.

Company Market Capitalization
Constellation Brands
(NYSE:STZ)
$3.1 B
Diageo
(NYSE:DEO)
$35.4 B
General Dynamics
(NYSE:GD)
$21.1 B
Northrop Grumman
(NYSE:NOC)
$13.5 B
WMS Industries
(NYSE:WMS)
$1.3 B
Data from market close December 8, 2008

Will GD Keep Moving with the Market?
Even when the United States is not engaged in a major conflict, it still needs weapons that act as a deterrent. Enter General Dynamics. The company supplies things like tanks, fighting vehicles and ammo. If you want something dead, General Dynamics' only question is "how dead do you want it?" To balance out the business, it also makes business jets with its Gulfstream Aerospace segment.

To be clear, the stock hasn't been immune to the market meltdown. The stock is down more than 42% over the last 52 weeks, while the S&P 500 was down just under 40%.

Generally Positive
However, there are some things that I see as positives. For starters, this company just keeps landing deals. It was recently awarded a $52 million engineering and support contract from the Navy. A subsidiary of the company was also recently awarded a $45.8 million contract option to provide work on a destroyer.

General Dynamics is also coming off a decent third quarter. It earned $1.59 a share, topping analyst expectations of $1.51 per share. It also raised 2008 guidance to $6.10 per share, up from its previous prediction of $6.00-6.05 per share in July. (To learn more, read Can Earnings Guidance Accurately Predict The Future.)

The analyst estimate is now at $6.18 per share, according to Yahoo Finance. I don't know if that number is doable, but for a stock that trades under $55 it does catch my eye, because that means it trades at only about 8.8 times the current year estimate.

Insider activity is also important when analyzing a stock, and there was an interesting buy recently by an officer. According to Yahoo Finance Jay Johnson purchased 14,000 shares at $53.76 a share in November. That seems like a pretty big vote of confidence to me. (To see how keeping tabs on company executives can provide clues about where a stock is headed, read Delving Into Insider Investments.)

In short, I think General Dynamics may be worth some closer examination given the fundamental factors mentioned above and the fact that it currently trades toward the low end of its 52-week trading range.

Bottom Line
Sin stocks are no guarantee of safety in a down market, but they can provide extra insulation during a down market. The key is to do your homework, and look for stocks that are truly immune to the ups and downs of the market.

Should ethics play a role in portfolio building? To learn more, read Socially Responsible Investing Vs. Sin Stocks.

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  10. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!