It’s Sarah Palin’s worst nightmare. Over the last few days, the stock market has built a “bridge to nowhere.” The Dow Jones Industrial Average has dropped 350 points since Sept. 8, showing little signs of life. At this level, the broad markets have only moved 1% since the beginning of July. Investors are surely getting restless, dimming prospects for a threatened interest rate hike by the U.S. Federal Reserve.
The economy is, if anything, stable, but not secure. There are many problems still afflicting Americans, and they represent the centerpiece of the 2016 Election. It’s in this exact scenario where sin stocks — or shares of companies in so-called vice industries — truly shine.
At the most cynical level, sin stocks are in the business of addiction. As such, there is really no better investment! While that sounds awful, consider the addiction plays that occur in other industries. Caffeine is known to be an addictive substance, yet there is no morality coalition against Starbucks Corporation (NASDAQ:SBUX). And up until recently, many people turned a blind eye to companies like The Coca-Cola Co (NYSE:KO), which is guilty as anyone else in using manipulative marketing practices.
Of course, most people draw the line between what are and aren’t sin stocks by one criteria — sex. But even here, there’s enormous hypocrisy. Just before its embarrassing data breach, cheating website Ashley Madison had 1.2 million British users. That’s roughly the equivalent of 5% of married couples in Great Britain. Its pre-breach momentum meant there was a lot of demand for this type of service whether anyone cared to admit it.
Ultimately, sin stocks should be viewed as an opportunity and nothing more. The instant we attach personal feelings or other financially unrelated emotions to an investment, we’re on the wrong path. With not much else moving in the markets, vice may become a matter of necessity.
Here are three sin stocks that can stimulate your portfolio!
Sin Stocks to Buy: Vector Group Ltd (VGR)
Smoking is one of the oldest vices, and it’s no surprise that “Big Tobacco” companies have taken advantage. These sin stocks tend to be the most talked about due to their stability and their generous dividend yields. But even with this passive income source, you would still have to own quite a few shares to make the dividends worth your while. Also, tobacco stocks can sometimes produce pedestrian returns in the markets.
Enter Vector Group Ltd (NYSE:VGR). VGR’s claim to fame is its e-cigarette business, which is conducted through its Zoom E-Cigs subsidiary.
Despite taking on a behemoth, this subsector is really making a powerful impact. Of the 45 million smokers in the U.S., more than 6% are e-cigarette smokers. That provides a lot of growth opportunity for VGR stock. More importantly, e-cigarette sales have jumped from $500 million in 2012 to nearly $2.9 billion in 2015. Again, that’s a big plus for Vector.
An even more enticing draw is the market performance. VGR stock did take a little bit of a slip during the first half of this year, but since the beginning of May, Vector is up 12%. Over the longer-term, shares have been charting a decidedly bullish trend channel. The sentiment for VGR stock perfectly matches the enormous growth potential seen in the e-cigarette business.
Naturally, many people will shy away from Vector Group due to its core business. However, VGR is one of the most exciting, and therefore tempting, sin stocks available.
Sin Stocks to Buy: Gaming and Leisure Properties Inc (GLPI)
Gambling is a distinct vice in that it has nearly universal appeal. But within the basket of sin stocks, major gaming companies have hit choppy waters. A tough competitive environment combined with a weakened economy has caused financial troubles for casinos. Still, the gaming market is more recession-proof than others. If played right, it could still provide strong gains.
That’s the opportunity for Gaming and Leisure Properties Inc (NASDAQ:GLPI). More real estate than gaming, GLPI stock has seen tremendous returns over the last few months. Recently, the company closed its deal for The Meadows Racetrack and Casino as part of its acquisitive strategy. GLPI stock got another boost from a favorable review from Morgan Stanley. The investment firm upgraded shares to “overweight” from “equal weight.” In addition, it increased its price target of GLPI stock from $36 to $38.
Year-to-date, investors have gained 22% in the markets. The other big draw for GLPI stock is its generous dividend yield, which is currently north of 7%. These metrics, though, do come at a price. Since its October 2013 initial public offering, GLPI stock has absorbed multiple swings in value. In other words, it’s not for the faint of heart.
Still, GLPI stock has received a glowing vote of confidence from a renowned financial institution. How many sin stocks can say that?
Sin Stocks to Buy: RCI Hospitality Holdings, Inc (RICK)
Let’s not kid ourselves. No discussion on sin stocks is complete without RCI Hospitality Holdings, Inc (NASDAQ:RICK). Although it was once marketed as a cabaret business, there’s no mistaking what RICK stock peddles.
While the broad retail and services sector have struggled, “gentlemen’s clubs” are raking in the dough. Despite moral reservations, you can’t deny outperformance when you see it.
The evidence is overwhelming when you look at the books for RICK stock. Officially, the company is lumped into the troubled restaurant category. But because of the draw of the sex business, the profitability margins for RICK stock are substantially better than the competition. Furthermore, the company’s top-line growth over the last three years is 12%. Stripper-less restaurants, on the other hand, average only 4% growth.
On a YTD basis, RICK stock is up more than 14% despite taking a significant blow in February. If we were to count from this year’s bottom, shares are up 50%. That’s the kind of recovery you’ll only see from sin stocks! While RICK stock has slowed a bit during the summer, it’s reasonable to expect continued growth. The company’s opening of a Manhattan gentleman’s club suggests a more welcoming shift towards such entertainment.
In good times and bad, sex always sells. That’s quite a catalyst for RICK stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.