Over time, certain so-called "sin stocks" have been touted as a safe haven during economic slowdown.

The reason some investors may favor these stocks in periods of economic sluggishness is quite simple: in both good times and in bad, sin stock staple items, such as tobacco, alcohol and weapons, maintain a relatively steady level of demand. In fact, some think that slow economic times may actually lead to increased consumption of things like alcohol and/or tobacco. (To learn more about this concept, be sure to read A Prelude to Sinful Investing and The Evolution Of Sinful Investing.)

Let's screen a few of these companies to see which might have solid upside potential.

Screening for Sin
Below is a list of so-called sin stocks that are expected to show positive earnings growth in the coming year. These may warrant a closer look.

Company Market Cap Current Year Estimate Next Year Estimate
Boeing
(NYSE:BA)
$31.9 Billion $4.59 $5.83
British American Tobacco
(Amex:BTI)
$54.6 Billion $4.00 $4.39
Lockheed Martin
(NYSE:LMT)
$32.1 Billion $7.72

$7.84

Raytheon
(NYSE:RTN)
$20.7 Billion $4.04

$4.59

Reynolds American
(NYSE:RAI)
$11.6 Billion $4.69 $4.73
Data as of January 12, 2009, intraday

The Big, Bad Boeing
The major airlines have had a tough go this past year. Rising fuel prices and the sluggish economy are largely to blame. Perhaps not surprisingly, Boeing, which makes commercial aircraft, has seen its share price sink by more than 40% over the last 52 weeks. (For more on airline stocks, see Is That Airline Ready For Liftoff?)

However, I believe that the shares will bounce back. After all, Boeing's foothold in the commercial aircraft business is strong and the company has also been heavily involved in weapons manufacturing. Its popular weapons systems include the B-1B aircraft and the F-22 Raptor.

Long story short, because the U.S. continues to emphasize the importance of homeland defense, it appears that America's need for weapons isn't going away entirely anytime soon. As a result, I think the company will continue to reap the benefits.

Digging a bit deeper I think it's important to realize that the company has generated some pretty decent numbers, despite the economic climate. In its Q3, the company generated 96 cents. This number was disappointing in that it was below the $1.44 a share it generated in the comparable period the year before - but it's still impressive, all things considered. And for the first nine months of its year, Boeing generated $3.76 (versus $3.92 a share in the comparable period the year earlier).

Also, according to data on Yahoo Finance, the company is expected to earn $4.59 a share in the current year and $5.83 a share next year. Given that the shares trade at $43 and change, that's hard to ignore. Running the numbers, the company currently trades at about 9.5 times the current year estimate and at about 7.5 times next year's estimate. I think that's pretty cheap. (Learn to set your own expectations in Do-It-Yourself Analyst Predictions.)

There are a couple of other tidbits about Boeing that bear mentioning:

-Boeing's director, John Biggs, bought 10,000 shares toward the latter part of last summer at $62.06. I think one could argue that he wouldn't have dropped that kind of money to buy the stock unless he thought he had a decent shot of making some dough down the road.

-Boeing's backlog is also intriguing. In its last reported quarterly earnings, Boeing reported that its backlog totaled $349.4 billion. That was up a bit from the $346.1 billion in the June quarter. This suggests that Boeing's future may not be as bleak as some might think.

Bottom Line
The short list of sin stocks above are also expected to show earnings per share growth in the next year (from the current year). They may warrant closer inspection. Sin stock companies tend to offer stable returns, even in hard times. As such, sinful sectors might be a good place to park a portion of your portfolio in both good times and bad.

Read the arguments for and against a sinful investing strategy in Socially Responsible Investing Vs. Sin Stocks.

Related Articles
  1. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  2. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  3. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  4. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  5. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  6. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  7. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  8. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  9. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  10. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
COMPANIES IN THIS ARTICLE
Trading Center