With the constant give-and-take of the global markets recently, it’s difficult to know where to put your money. Although we have encouraging results from the vaccine rollout — with an apparent decline in Covid-19 cases — there’s still a lot of mystery surrounding how economies worldwide will respond in the next few years. Still, there is one sector that could rise above the muck: sin stocks.
To be clear, diving into controversial companies or business segments is a cynical strategy. Many of these names don’t qualify as environmental, social and governance (ESG) investments. Instead, these stocks are largely associated with often negative consumer behaviors. But I anticipate that those behaviors will still occur if things don’t go as planned.
First, crimes of desperation tend to increase during periods of economic uncertainty. That’s according to a Reuters report, citing sociologists who stated that “Crime has increased during every recession since the late 1950s.” Naturally, I’m looking at sin stocks that could respond to this threat.
Second, additional research suggests that financial downturns negatively affect adolescents, especially those who lack family stability. Personally, I don’t think it’s a stretch to assume that risky behaviors will increase across the board as people either engage in desperate crime or thrill-seek to numb fiscal pains.
Third, if left unchecked, sociological analyses indicate that recessions can impose pressure on mental health and wellness. Logically, this may lead to risky or comfort-seeking behaviors, such as smoking or drinking. Additionally (in the interest of keeping this list as diverse as possible), even stress causes overeating. Obviously, there’s a lot of stress going around right now. So, that guilty pleasure could provide an “excellent” backdrop for these sin stocks to buy, too.
- Smith & Wesson Brands (NASDAQ:SWBI)
- Big 5 Sporting Goods (NASDAQ:BGFV)
- The GEO Group (NYSE:GEO)
- RCI Hospitality (NASDAQ:RICK)
- Interactive Brokers (NASDAQ:IBKR)
- Mind Medicine (OTCMKTS:MMEDF)
- McDonald’s (NYSE:MCD)
Smith & Wesson Brands (SWBI)
SWBI is the first name on this list, but I’ve long admired Smith & Wesson Brands as one of the better sin stocks to buy. And really, how can you not in this environment?
Of course, I’m sensitive to the fact that many Americans don’t like the idea of firearms. I respect that opinion. However, that opinion could fly out of the window if you’re faced with an imminent threat.
Also, before you blast SWBI stock as a violent and cynical play, you should know the average police response time is 18 minutes — 18 minutes! So, it’s not completely absurd for folks to seek personal protection. If you think you can go toe-to-toe with a determined criminal, my hats off to you. But I’m not so sure.
True, SWBI stock has recently been getting hammered by the state of New Jersey, which has alleged advertising fraud. According to The New York Times, “at issue are ads like a TV commercial that shows a woman carrying a pistol in a handbag everywhere she goes, from the office to the gym.” That’s a crime without a concealed-carry permit.
But in my opinion, this will not affect the company long-term. Smith & Wesson is a solid, relevant brand. In fact, it’s one of the best stocks on this list.
Big 5 Sporting Goods (BGFV)
Prior to the pandemic, Big 5 Sporting Goods didn’t looking good at all. With millennials and Generation Z increasingly gravitating toward e-sports, there wasn’t much to like about BGFV stock.
But then came the pandemic which, while devastating many sectors, basically gave Big 5 a reprieve. That’s because the company specializes in retail products for people traveling the great outdoors — and that includes firearms. Frankly, in some of our wilderness areas, you’d be foolish to not carry a high-powered firearm.
Of course, though, BGFV stock didn’t get a firearms boost because people were scared of bears. Instead, with all of the uncertainty of the pandemic — including job loss — people have been seeking security. So, despite the usually negative environment for firearms-related sin stocks, I’m bullish on Big 5 and the future demand of self-preservation.
The GEO Group (GEO)
GEO stock is probably the riskiest name on this list of sin stocks to buy, so you should only dedicate a small portion of your speculation portfolio to it. And by small, I mean something miniscule like 1%. GEO Group is a high-risk, high-reward trade that could go anywhere.
Indeed, the underlying fundamentals are not very encouraging for this private penal company. Management calls itself a correctional rehabilitation center, but GEO is more like a private-prison investment. Let’s not get that mixed up.
Moreover, President Joe Biden has been busy reversing the previous administration’s policies, including immigration protocols for undocumented detainees. Plus, during the 2020 electoral campaign trail, Biden promised to decriminalize marijuana. So, this looser stance on crime isn’t helpful for GEO stock.
However, other types of crime could rise if we have an extended recession. If that’s the case, this stock could make for a contrarian trade. But be extremely careful if you’re considering taking a position — nothing is guaranteed.
RCI Hospitality (RICK)
If we were talking about a garden-variety recession, I would probably be unabashedly bullish on RCI Hospitality. For those that don’t know, the word “hospitality” here does not refer to hotels. Instead, RCI is a night-club company that deals in gentlemen’s clubs and adult entertainment.
So, the bottom line with RICK stock? It’s a worthwhile speculative investment if you think that society will recover from the pandemic — and that’s even if the economy doesn’t. According to a CNBC report from 2013, the “hospitality” industry was booming despite economic turmoil at the time.
Of course, the headwind for RCI is whether consumers are now willing to risk getting Covid-19 for a frivolous evening. But we men tend to do stupid things, so it’s possible that RICK stock has more upside.
Currently, though, shares of RCI have already gone up 72% year-to-date (YTD), making it one of the top sin stocks on this list. Because of that, you might want to wait for a bit before you dive in.
Interactive Brokers (IBKR)
You may have never seen Interactive Brokers included on a list of sin stocks before and you may never see it again. After all, these are unusual times. However, IBKR stock does deserve to be on this list because of the present context.
First, Interactive Brokers’ chairman, Thomas Peterffy, took a dim view back in February on the meme-stock phenomenon that recently captured headlines. According to Peterffy, “We have come dangerously close to the collapse of the entire system and the public seems to be completely unaware of that, including Congress and the regulators.” It’s fair to say, though, that many traders would disagree. Wall Street fat cats can work the system for their benefit, so why can’t retail investors do the same?
Second, IBKR stock is enjoying the good life, thanks in part to a record level of equities trading on margin. Bear in mind that buying stocks on margin contributed to the crash of 1929 and the resultant Great Depression.
Nevertheless, if this wildness continues to go higher — and no one can really predict when the bubble will burst — IBKR is in a great position to capitalize. But please, if you’re going to play this, do so very carefully.
Mind Medicine (MMEDF)
As I mentioned at the beginning of this article, these are stressful times. True, some pieces of economic data — such as the unemployment rate — have improved from the worst of the pandemic. But the situation could also be worse-off than advertised. For instance, it’s not clear if government data is capturing non-traditional laborers like gig workers. So, we’re still not out of the woods.
To that end (while terribly cynical) people do tend to look for relief when the pressure increases. Prior to the opioid crisis, patients with mental-health issues looked to pharmaceutical solutions. However, addiction to painkillers and other drugs is a huge concern right now. Therefore, naturally sourced, non-addictive psychedelic medicines — like the ones Mind Medicine specializes in — may help.
That’s not to say that MMEDF stock is a clear winner. Throughout most of last year, Mind Medicine shares were priced under $1. It’s only recently that they’ve traded in the $3 territory. And still, now trading at $2.72, the share price is not something to write home about.
However, we may see growing cases of mental-health issues if we don’t control the pandemic and get the economy back on track. Because of that, when it comes to sin stocks, you may want to consider a position in MMEDF with the “dumb money” portion of your portfolio.
Although McDonald’s is supposed to give off family-fun vibes, I think it now belongs on this list of sin stocks given the context of the pandemic. That’s because I marvel at consumer choices. Despite a broader marketing effort to save small businesses — especially local bars and restaurants — many Americans are still choosing to crowd MCD’s drive-thru lanes.
I get it. Having tried McDonald’s, I know the drive-thru service is lightning quick. But at a time when local businesses are suffering the most, I don’t understand why millions still choose to support a big chain instead.
But that said, this article isn’t about fighting the tape. It’s about making money. And MCD stock is one of the more reliable ways to do so.
Simply put, people are addicted to fast food. What’s more, the addiction is so bad that it apparently clouds their judgment — hence the lack of support for local eateries. Plus, it also doesn’t help that increased stress tends to amplify poor-eating habits. That all makes MCD stock incredibly worthy of consideration.
On the date of publication, Josh Enomoto held a long position in MMEDF.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.