Sin stocks are among the more confusing stocks for investors to bet on. As a category, they tend to perform well in both boom times and economic downturns. But not all sin stocks perform the same way.
For example, alcohol sales have been robust during the pandemic. How robust you ask? According to Nielsen, alcohol sales were 54% higher in March on a year-over-year (YoY) basis. Online sales were up nearly 500% in late April. According to a poll by Morning Consult, adults of all age groups were imbibing more.
In an ironic turn of events, some marijuana stocks are starting to show some green shoots during the pandemic as well.
On the other hand, casino stocks have been absolutely obliterated by the novel coronavirus and it may be a long time before they see traffic return to normal. But if investors move outside of the casino realm to look for gambling stocks, there are several good options, particularly as live sports are returning.
Much like the end of World War II and maybe the repeal of prohibition, the end of the pandemic will probably bring a surge to many sin stocks, but that shouldn’t discourage investors from taking action on these stocks right now.
- Altria Group (NYSE:MO)
- Diageo (NYSE:DEO)
- Sturm Ruger (NYSE:RGR)
- DraftKings (NASDAQ:DKNG)
- Boyd Gaming (NYSE:BYD)
Altria Group (MO)
Among sin stocks, it’s easy to like Altria Group because of the diversity it gives to investors. As the parent company to Phillip Morris USA (NYSE:PM) and John Middleton Co., MO stock is a good way to play traditional cigarette and cigar stocks.
Altria has exposure to the rapidly growing e-cigarette market with a stake in Juul. It has a touch of the cannabis market as an investor in the Cronos Group (NASDAQ:CRON). And it has the adult beverage market covered with its minority stake in Anheuser-Busch InBev (NYSE:BUD).
In short, it’s kind of like its own index fund of sin stocks. But it comes with a very attractive dividend that currently has an 8.2% yield. As of this writing Altria stock is climbing from its March depths but is still about 17% down year to date. Altria has had a nice habit of delivering double-digit growth, so now might be a good time to pick up this well-diversified sin stock.
Diageo is a purveyor of some of the finest top-shelf liquor brands. But it doesn’t stop there. In fact, consumers can find Diageo brands at almost any price point. This is one reason why it’s a great choice during and after the Covid-19 pandemic.
Undoubtedly, there are some consumers who are tightening their belts. But if my social media page is any indication, there are a lot of people who are taking this opportunity to learn a new cocktail recipe or two.
Looking beyond the pandemic, revenue in this industry is only expected to grow. And the company will gain approximately 550 million more potential drinkers by the end of the decade.
Here’s something else to consider. We are living in a time of great social unrest. In the midst of that Diageo has a strong track record of diversity and inclusion, including being ranked number two in the 2019 Refinitiv Diversity & Inclusion Index.
Sturm Ruger (RGR)
Not to take the air out of the room, but that social unrest I mentioned above is manifesting itself in several ways throughout the country. And not all of them are peaceful. That means that many Americans are beginning to rethink their personal safety and that of their families. According to the Federal Bureau of Investigations (FBI), background checks on gun buyers surged 70% in the month of June.
However, as investors we don’t make the news. But we can respond to it. Sturm Ruger was already seeing strong sales before the civil unrest began. What’s even better news for RGR stock investors is that the company has always maintained a policy in which they infrequently discount. This means the company has been able to maintain its margins.
Safety will be a key issue in the upcoming presidential election. In past election cycles, gun stocks would go up or down depending on what party won. That will likely not be the case this year as either party is going to struggle to quiet the current protests.
DraftKings has been one of the more interesting sin stocks to watch during this pandemic. DKNG stock followed the broader market and dipped about 30% between mid-February and mid-March. Then, despite live sports being completely dark, the stock started creeping back up. By the time mid-June rolled around, investors who bought at the depth were rewarded with a gain of over 267%.
The stock has pulled back a little, but there are plenty of catalysts. Professional baseball is still in the proof of concept stage. The novel coronavirus may still prove to be too stubborn of an enemy to defeat. And baseball’s success (or failure) may be a harbinger for whether football gets played this fall.
Losing either or both would be bad, but the bubble hasn’t burst. That’s because professional basketball and hockey are enjoying more measured success as they have corralled their teams in bubbles to attempt a restart. That means investors will have things to gamble on.
Boyd Gaming (BYD)
If you have a larger appetite for risk, I have a casino stock you should consider adding to a portfolio of sin stocks. Boyd Gaming just delivered the proverbial “better than expected” or “not as bad as feared” earnings report. And that has investors excited. Yes, there is concern that casinos may still shut down again, but there are two reasons why BYD stock may be able to weather that storm.
First, Boyd Gaming thrives on local and regional traffic. That sets it solidly apart from a casino like Las Vegas Sands (NYSE:LVS), which relies on traffic coming in from outside of Las Vegas and Macau. LVS reported a 97% decline in revenue.
Boyd took steps early on to help ensure its survival. The company raised $600 million of capital at an interest rate of 8.625% through 2025 at the onset of the pandemic. And like many companies, Boyd took prudent steps to minimize its cash burn.
Plus, Boyd launched an iGaming product in late January that helped bring in some revenue when the physical properties were closed. Plus, it’s an area that can grow if gamblers decide it’s safer to get their fix online.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.