Typically, most investors don’t actively seek out so-called vice stocks. Due to their controversial businesses or recent scandals, some companies are deemed not worth the trouble to engage with. However, with financial markets entering a phase of fear and uncertainty, any viable alternative is open for consideration.
But for those who are still hesitant to buy vice stocks, it’s important to note that the term is largely a marketing construct. For instance, an investor can rail against tobacco companies on moral grounds. However, eliminating the industry altogether would create massive economic problems, primarily due to lost employment.
Another reason to at least be open to vice stocks is market performance. More than a decade ago, The Atlantic discussed the challenges of socially responsible investing, or SRI. While it may soothe the conscience to avoid morally questionable investments, such decisions are potentially costly.
And in cycles where solid returns are difficult to extract, SRI purchases are luxuries that many investors can’t afford. If you’re ready to ditch the guilt, here are top 20 vice stocks for “sinful” gains.
Vice Stocks to Buy: Sturm Ruger (RGR)
I can think of no other industry that is as controversial today as firearms manufacturing. With tragic school shootings occurring with shocking frequency, gun companies have been on the defensive. Earlier this year, legendary manufacturer Remington sought bankruptcy protection. While not related to any one incident, Remington surely felt the financial pressure from angry citizens.
So why include Sturm Ruger & Company Inc (NYSE:RGR) on this list of vice stocks? On moral grounds, I believe many investors are unfairly condemning RGR and similar companies. As Forbes’ contributor Paul Hsieh argues, gun violence studies are incomplete without including incidents where firearms saved lives. According to one government-endorsed analysis, defensive-gun uses are much more prevalent than most people realize.
Against an investment framework, RGR stock has picked up considerable momentum. On a year-to-date basis, shares are up more than 10%. Since the beginning of March, RGR has veritably skyrocketed to a nearly 43% profit.
It’s not the most politically palatable name, I admit. But in this year of slow returns, RGR stock deserves at least some consideration.
Vice Stocks to Buy: American Outdoor Brands (AOBC)
Due to its name change, American Outdoor Brands Corp (NASDAQ:AOBC) sounds like a perfectly boring company. However, AOBC once went by Smith & Wesson Holding Corporation. You’d have to live under a rock to not recognize that notorious brand name.
As with Sturm Ruger, AOBC stock took a beating this year. Ironically, though, American Outdoor suffered due to an “unfavorable” political environment. With President Donald Trump in command, the likelihood of gun-control measures declined significantly. After the Parkland school shooting, AOBC shares gained slightly in the markets before retreating.
The biggest pressure point wasn’t gun control nor horrific gun violence. Instead, it was that nobody cared enough to react to the news.
However, that dynamic has shifted over the last few months. With even more school shootings and other firearms-related violence, President Trump briefly entertained imposing limited gun-control measures. That didn’t last, but it was enough to give a necessary boost to AOBC stock.
Given a severely contentious political environment, look for firearms-related vice stocks to stage a recovery rally.
Vice Stocks to Buy: Vista Outdoor (VSTO)
Talking about the firearms business is never a popular subject. You can multiply this sentiment five-fold at this present juncture. Nevertheless, we have one fact that simply cannot be denied: shooting sports are incredibly popular, and therefore, eliminating guns is easier said than done.
You can logically deduct how much Americans love their guns. Almost three years ago, The Washington Post famously declared that we have more guns than people in the U.S. You can’t tell me that all these firearms are exclusively stored for criminal activity; that wouldn’t make any sense.
I dare say that a majority of these guns are used neither for crimes nor self-defense. Instead, Americans love to shoot. And within the shooting sports is a sub-category that has gained significant momentum: long-range shooting. To bank on this trend, you should consider Vista Outdoor Inc (NYSE:VSTO).
Vista features a long list of ammunition brands, several of which include calibers specific to firing from long distances. In addition, the company owns top rifle-scope brands that are must-have accessories for this sport.
One of the biggest risks for VSTO stock is that it has never earned a reputation for stability. That said, it’s on a relatively strong run this year, up 12%.
Vice Stocks to Buy: Big 5 Sporting Goods (BGFV)
Sometimes vice stocks become so controversial that they fail to please both ends of the political spectrum. Big 5 Sporting Goods Corporation (NASDAQ:BGFV) is a prime example of a firearms retailer taking heat from all directions.
No matter how you cut it, BGFV stock was always controversial from the get-go. As gun violence soared, Big 5 staunchly refused to stop selling firearms; they represented too big of a revenue stream to ignore. Thus, their management team didn’t endear themselves to liberals and progressives.
But last year, the advocacy group Gun Owners of California accused the retailer of sitting silently while California legislators penned draconian firearms restrictions. Calls for a Big 5 boycott among gun owners quickly escalated.
I’m almost certain I’ll get heat from “gun trolls” giving positive attention to the company. That said, no one can deny BGFV stock. After years of disappointing performances, shares are finally gaining respectable traction, up nearly 10%.
Vice Stocks to Buy: Dicks Sporting Goods (DKS)
Dick’s Sporting Goods Inc (NYSE:DKS) is another firearms retailer that’s pleasing no one decisively on either aisle. Following the Parkland massacre, Dick’s announced that it would no longer carry modern sporting rifles (MSRs) such as the AR15. They also raised the age limit to buy a firearm from 18 to 21.
Understandably, gun owners across the country were upset at the news, calling for a boycott. I for one consider the move a cop-out. Dick’s is still selling firearms. The only difference is that they’re no longer carrying MSRs. Last time I checked, a shotgun can be just as damaging to human flesh as a semiautomatic rifle.
That said, DKS can be considered a “halfway” investment among firearms-related vice stocks. Chances are, none of the guns that Dick’s currently sells will end up in a crime. Unless you’re Lee Harvey Oswald or a man on a grassy knoll, bolt-action rifles are inconvenient weapons. Therefore, you can enjoy some of the benefits of a possible gun-sales lift without all the associated stigmas.
Vice Stocks to Buy: Walmart (WMT)
For most investors, Walmart Inc (NYSE:WMT) doesn’t strike them as belonging on a list of vice stocks, yet the big-box retailer is renowned for serving all customers’ needs, and that, whether you like it or not, include gun owners.
Similar to Dick’s, Walmart has self-imposed restrictions on firearm sales. In 2015, WMT stopped offering MSRs, nor do they offer accessories such as bump stocks (which simulate automatic fire) and high-capacity magazines. They also don’t sell handguns, except in Alaska. I assume fears of getting eaten by bears supersedes moral qualms.
Therefore, Walmart is also a “halfway” firearms investment: you’re probably not going to find their products used in crimes. However, gun owners have a more favorable opinion about WMT stock for two reasons. First, the company has always served the general public, and not a niche community. Second, they offer incredible deals on ammunition.
Even in liberal California, WMT provides cheap ammo. And while gun-control advocates would prefer the retailer to stop the practice altogether, the money is too good to ignore.
Vice Stocks to Buy: Altria (MO)
Although one of the most popular vice stocks, Altria Group Inc (NYSE:MO), isn’t living up to expectations this year. On a YTD basis, MO stock has dropped more than 21%, largely due to significant headwinds for cigarette sales.
Despite serious challenges, I’m not ready to give up on Altria Group. Yes, all tobacco companies will need answers to address a dramatic shift in consumer behavior. However, that solution has already been found. Vaporizers, or e-cigarettes, have rapidly exploded in popularity. As a result, several companies have latched onto this trend.
However, these new vaporizer businesses have one vulnerability. In my last write-up for MO stock, I stated that “most vaporizers do not replicate the smoking experience very well. As a result, many smokers who transitioned to vaporizers often transition back to the real thing.”
Smokers going back to their original habit obviously represents a revenue lift for MO stock. But on a more healthy and sustainable basis, Altria Group has their own digital alternative using heat-not-burn technology. Designed specifically for smokers, these devices can help steal significant e-cigarette market share.
Vice Stocks to Buy: Philip Morris International (PM)
Like Altria, Philip Morris International Inc. (NYSE:PM) absorbed multiple body blows this year. Since its January opener, PM stock has cratered more than 25%. Following what Wall Street considered a disappointing first-quarter earnings report, shares can’t seem to find a floor.
Analysts didn’t particularly care for the company’s heat-not-burn tobacco device sales. Called iQOS, Philip Morris anticipated that Japanese consumers would quickly adopt the digital platform. Unfortunately, despite the country’s generally ravenous appetite for smoking, iQOS sales fell below expectations.
That said, I felt that investors were overreacting to just one quarter’s worth of data. Japanese smokers, especially young males, represent a strong revenue channel for the iQOS platform.
Furthermore, financial performances against the prior year were quite strong. For instance, Q1 revenue was $6.9 billion, up nearly 14% from Q1 2017. Also, net income was stable from the year-ago period.
Finally, the negativity surrounding PM stock pushed its dividend yield to 5.5%. Given its long-term history, Philip Morris deserves a second look.
Vice Stocks to Buy: Alliance One International (AOI)
While it’s easy to have a pessimistic attitude towards tobacco companies right now, Alliance One International, Inc. (NYSE:AOI) proves that this sector is still viable. AOI stock has been a surprise performer in 2018, gaining 59.5% YTD.
Rather than manufacturing tobacco products, Alliance instead specializes in the curing, processing, storage and distribution of premium tobacco leaves. Its clients include the world’s leading cigarette manufacturers; thus, AOI isn’t encumbered with exclusivity zones. Recently, Alliance announced that it’s entering the hemp and cannabis markets, further expanding their corporate footprint.
More importantly, management has made substantive progress in the company’s financials. In its most recent Q4 earnings report, AOI delivered $478 million, up 5% from the year-ago quarter. At the net-income level, the company hauled in $88 million. In the prior year’s quarter, Alliance One lost $15 million.
To be fair, AOI stock is one of the more volatile names on this list. But if you can stomach the risk, Alliance has serious upside potential.
Vice Stocks to Buy: British American Tobacco (BTI)
Although no cigarette company has evaded this year’s extreme volatility, I’m most excited about British American Tobacco PLC (ADR)’s (NYSE:BTI) chances to lift itself off the ground. So far this year, BTI stock is down almost 24%, which would ordinarily incite panic. However, a little patience could go a long way.
Last year, British American acquired Reynolds American Inc. In doing so, BTI became the world’s leading vaporizer company, according to their website. It’s a significant move because that’s where the smoking market is headed. But with BTI levering its tobacco expertise, it can better create products that precisely mimic the traditional smoking experience.
Not only that, BTI, thanks to its Reynolds acquisition, has a robust vaporizer portfolio. Earlier e-cigarette products were simplistic affairs. Today, BTI offers both closed and open-system vaporizers. The latter format allows users to mix-and-match e-cigarette flavors, and is a desirable feature in the vaping market.
Vice Stocks to Buy: RCI Hospitality Holdings (RICK)
No list of vice stocks to buy is complete without mentioning RCI Hospitality Holdings Inc (NASDAQ:RICK). The ambiguously named company maintains several gentlemen’s clubs and dineries featuring “mature” experiences. According to their website, the late “Anna Nicole Smith met her oil billionaire husband while dancing at Rick’s Cabaret.”
RCI’s other notable distinction is that it’s currently the only direct “intimacy” play available in the stock markets. In prior years, investors had opportunities to invest in adult-film studios and “questionable” magazines. Now, those opportunities are gone.
Still, I wouldn’t get too hung up on it. Last year, RICK stock enjoyed a stellar performance, and this year is no different, up 15%. Curiously, RCI Hospitality received a major boost shortly after Donald Trump was declared the victor in the 2016 presidential race.
I don’t want to step out of line, but I can’t help thinking RICK may be the “Trumpiest” Trump stock of them all!
Vice Stocks to Buy: L Brands (LB)
If you’re looking for a classy but slightly naughty play among vice stocks, consider picking up L Brands Inc (NYSE:LB). Most famous for its Victoria’s Secret brand, the company proudly advertises their “feels like wearing nothing” bras. I’ll just take them at their word.
Despite its world-famous products, and associated marketing machine, LB stock has failed to deliver the goods for shareholders. This year, shares are down an alarming 40%. Against the January opener for 2016, LB has evaporated nearly 57% of market value. Unfortunately, the company’s equity is like their bras, with one exception: with LB, you really are getting nothing!
However, speculative investors may have an opportunity here. L Brands features has very high profitability margins compared to global apparel makers. In recent years, sales growth has notably slowed. However, in its most recent reporting quarter, the company grew sales nearly 8% year-over-year. Also, shares have stabilized since mid-May.
That tells me that the bears are excessively pessimistic towards L stock.
Vice Stocks to Buy: Constellation Brands (STZ)
Buying alcohol typically leads to bad decisions, and in the worst cases, several regretful years. But buying alcohol stocks, on the other hand, is strangely one of the better decisions you can make. Case in point is Constellation Brands, Inc. (NYSE:STZ). Over the trailing five years, STZ stock is up over 300%.
As a caveat, alcohol-related vice stocks often experience choppy or volatile phases. Currently, we’re experiencing just such a phase. STZ stock has already experienced several bumps and bruises this year, yet it’s just barely under parity for 2018. However, I consider this moment as a shrewd buying opportunity.
For starters, Constellation Brands’ operating and net margins are both in the top 10% of the alcoholic-beverage industry. Its three-year revenue growth rate exceeds 87% of its competitors’ results. Its most recent quarter also produced encouraging figures, with revenue increasing 8.5% against the year-ago level.
Finally, STZ stock features top brand names, including Modelo, Corona and Pacifico.
Vice Stocks to Buy: Anheuser Busch Inbev (BUD)
I love America. But with that statement, I’m not necessarily proud of everything that this great nation has produced. Yes, we have enormous problems in our society that blight our dignity and our good name. But for me, the worst of the bunch is Anheuser Busch Inbev NV (ADR)’s (NYSE:BUD) Bud Light.
Let me be 100% clear: Bud Light is an abomination to beer. I’m not sure what the mixologists at Anheuser Busch were aiming for; perhaps salt water with a dash of bovine urine? Whatever the case, it’s disgusting. If you offer your friends Bud Light, you don’t deserve to have friends.
Shockingly, Bud Light was the most popular domestic beer in terms of sales last year, and I’ll add by a country mile. No wonder why America is divisive today. It has nothing to do with President Trump. Instead, half of the nation drinks Bud Light, and the other half can’t understand why.
But with all the terrible things I just said, it is the king of beers. You don’t have to understand why to profit from BUD stock.
Vice Stocks to Buy: Boston Beer Company (SAM)
If you’re looking for quality beer, you can stop your search at Boston Beer Company Inc (NYSE:SAM). World famous for its Samuel Adams brand, Boston Beer represents what’s right with America. Furthermore, the brewery added Twisted Tea and Angry Orchard to its lineup of delectable adult beverages.
But its amazing product line isn’t the only distinguishing factor driving SAM stock. Unlike many of its competitors, Boston Beer levers excellent financial metrics. It has an exceptionally strong balance sheet unencumbered with long-term debt. Furthermore, it has solid profitability margins, as well as above-average revenue growth.
On the top line, Boston Beer experienced significant slowdown in the past two years. However, sales for Q1 jumped up to $190.5 million, nearly an 18% increase from the year-ago quarter.
The one knock would be that SAM stock is hardly an unknown commodity. Wall Street was enthused with Boston Beer’s progress. As a result, SAM shares are already up 37%. That said, I’d look to make a position whenever the company experiences a correction.
Vice Stocks to Buy: Willamette Valley Vineyards (WVVI)
Call Willamette Valley Vineyards, Inc. (NASDAQ:WVVI) the classy take on vice stocks. Willamette features a distinctive business with multiple revenue streams. Primarily, the company crafts premium-quality wine in their Oregon vineyard. Additionally, Willamette offers a wine club subscription service, as well as an elegant tasting room.
From a fundamental perspective, WVVI stock more than holds its own. Willamette maintains a stable balance sheet, with a favorable debt-to-equity ratio relative to the competition. Management also keeps costs in check, resulting in strong profitability margins. Finally, its trailing three-year revenue growth rate is one of the best in the business.
Where WVVI stock becomes speculative is its technical performance. For one thing, volume levels are typically low, averaging around 10,000 shares. Because of this dynamic, shares don’t move as much as other vice stocks.
However, with a longer-term strategy, WVVI has the potential to positively surprise.
Vice Stocks to Buy: Churchill Downs (CHDN)
We can’t have a list of vice stocks without mentioning the gambling industry. To that end, I offer Churchill Downs, Inc. (NASDAQ:CHDN). Known worldwide for operating the Kentucky Derby, Churchill Downs offers more than just the “greatest two minutes in sports.” Within its portfolio are horse racetracks, casinos and an online wagering company.
More importantly, strong financials back CHDN stock. Churchill Downs’ profitability margins are right up there among elite global-gaming operators. In addition, management has maintained strong growth and earnings metrics over the trailing three-year period. Better yet, CHDN scored an impressive Q1 earnings report, increasing sales to $189.3 million, or a 13% YOY lift.
So far, Wall Street loves what they’re seeing, with CHDN stock up around 30% YTD. As a result, Churchill Downs isn’t exactly an undervalued play. However, it’s currently taking a dip, which might offer a shrewd entry point into an otherwise strong company.
Vice Stocks to Buy: Electronic Arts (EA)
Ordinarily, you wouldn’t consider Electronic Arts Inc. (NASDAQ:EA) belonging on a list of vice stocks. However, the growing evidence of video-game addiction suggests otherwise. While most gamers can function normally and separate themselves from their onscreen fantasies, an increasing number of people are hooked.
While I don’t condone companies deliberately seeking to cause product addiction, that’s not what’s going on here. Rather, companies like Electronic Arts and rival Activision Blizzard, Inc. (NASDAQ:ATVI) are simply creating compelling products. Even older gamers who otherwise have better things to do are just as liable to be digitally seduced.
Moreover, I’m particularly bullish on EA stock because of its virtual monopoly on professional sports licensing. I recently made this case early last month, and so far, shares have enjoyed a hearty pop. Longer-term, I fully expect the trend to continue. Avid sports gamers are keen on every EA Sports release, which makes Electronic Arts a must-buy.
Vice Stocks to Buy: Facebook (FB)
Immediately after the Cambridge Analytica debacle made headlines and broke the internet, as the kids like to say, it was tempting to believe that Facebook, Inc. (NASDAQ:FB) would suffer. After all, the primary reason why folks were so upset was that Cambridge possibly helped Trump secure the White House.
In other words, wah, wah, wah. Nobody really cared that the issue was a privacy-disclosure violation. If it was just the matter of somebody using social-media data inappropriately, no one would raise a fuss. But with Trump involved, suddenly, anything and everything is open game.
I think the real victim in this controversy are shareholders who got spooked out of FB stock. For several weeks, the situation looked bad. At its worst, FB shares were down more than 14% YTD. But with anything Facebook-related, you must consider the bigger picture. Yes, Cambridge was an embarrassing incident, but what will you do without its platform?
Sending naked pictures of yourself is wonderful and all, but the beauty of FB stock is its all-in-one nature. You can do stupid stuff on Facebook, but you can also do useful things, like search for long-lost friends or perform research for your upcoming job interview.
Those are the things investors should focus on, not precontrived controversies that will eventually blow over.
Vice Stocks to Buy: Equifax (EFX)
Everybody should hate Equifax Inc. (NYSE:EFX). Last year, the credit-monitoring agency suffered an unprecedented and unthinkable data breach. A staggering 143 million people had their personal information stolen. I’m assuming Equifax execs had to leave their offices wearing bulletproof vests.
The public response was quick and fierce. Not only that, the scope of the breach was so massive that analysts wondered if EFX stock would ever recover. Our own James Brumley stated that consumers who have grown accustomed to corporate BS are “losing their will to forgive and forget though, and unlike in the past, they won’t ‘get over it.’”
It’s a fair argument. But as I said at the time, we’re outraged today, and we’ll forget about it tomorrow.
So far, this thesis has panned out as I expected it to. Since hitting bottom in mid-September last year, EFX stock gained nearly 27%.
If you’re a risk-tolerant speculator, I think you still have upside potential. With so much going on right now with the economy and geopolitics, no one cares about EFX stock. This is the perfect time to go contrarian while everyone else is distracted.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.