Sin stocks may be controversial for some readers. But they can potentially generate lucrative returns. The so-called “sin” or “vice” stocks mostly include alcohol, tobacco, marijuana, gambling, adult entertainment and defense industries. The AdvisorShares Vice ETF (NYSEARCA:VICE) with holdings in gambling, alcohol, tobacco, restaurants and hospitality has gained more than 50% over the past year. Therefore, today’s article introduces seven sin stocks to buy in June.
Vice stocks, many of which also have high dividends, can also help diversify long-term portfolios. Recent research by Greg M. Richey of the University of California highlights that the “defensive nature of sin stocks [means] some immunity from downside risk due to cyclical fluctuations and economic downturns.”
After a solitary period without much human interaction, it’s not surprising that there are many people out there craving some of the human vices, according to the Guardian. “Hot vax summer will be the collective rediscovery of the joys of human interaction and touch,” says Prishita Maheshwari-Aplin, who is both a Voices4 London trustee and the politics editor at Bricks. “It’ll be the release of internalized anxieties, stress and frustration.”
Such a summer could also lead to soaring investor interest in sin stocks. With that in mind, here is a list of seven sin stocks that are expected to gain traction in the hot vax summer ahead.
- Altria (NYSE:MO)
- Anheuser Busch Inbev (NYSE:BUD)
- British American Tobacco (NYSE:BTI)
- Constellation Brands (NYSE:STZ)
- Draftkings (NASDAQ:DKNG)
- Las Vegas Sands (NYSE:LVS)
- Raytheon Technologies (NYSE:RTX)
Sin Stocks: Altria (MO)
52-Week range: $35.83 – $52.59
Dividend yield: 6.9%
We start our discussion today with a global tobacco name, i.e., Altria. The Richmond, Virginia-based group is also known as the owner of Philip Morris USA. Its business divisions include smokable products, smokeless products and wine. Altria is the leading name in cigarettes and smokeless tobacco in the U.S.
The Marlboro brand is the top cigarette brand stateside with more than a 40% market share. Altria also holds a 10% stake in alcohol producer Anheuser-Busch InBev, which we will also discuss next, and a 45% stake in the Canadian marijuana group Cronos (NASDAQ:CRON).
In late April, Altria released first-quarter metrics. Net revenue came at $6.04 billion, down 5.1% year-over-year (YOY). Adjusted earnings per share (EPS) of $1.07 meant a decline of 1.8% YOY.
CEO Billy Gifford cited, “Against a challenging comparison, our tobacco businesses performed well in the first quarter and we continued to make progress advancing our non-combustible portfolio. This morning we announced another important milestone in Altria’s journey in Moving Beyond Smoking™. We now have full global ownership of on! oral nicotine pouches as we recently closed transactions to acquire the remaining 20% global interest.”
Altria, which paid $1.6 billion in dividends in Q1, remains a darling among passive income seekers. Management aims to maintain a dividend payout ratio target of approximately 80% of its adjusted diluted EPS. In addition, during the quarter, the company bought back 6.9 million shares at an average price of $47.02, for a total cost of $325 million.
Year-to-date (YTD), Altria stock has returned 23%, and the shares hit a multi-year high in late March. Forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 10.9 and 4.5. Given the impressive run-up in price so far in the year, short-term profit-taking could be around the corner. Potential buy-and-hold investors would find better value between $47.50 and $50.
Anheuser Busch Inbev (BUD)
52-Week range: $47.80 – $77.14
Dividend yield: 1.5%
Belgium-based Anheuser Busch Inbev is one of the largest global brewers with over 164,000 employees based in nearly 50 countries worldwide. The company has a diverse portfolio of over 500 beer brands such as Budweiser, Corona, Stella Artois, Beck’s, Cristal, Harbin, Victoria, and Skol.
On May 6, Anheuser Busch released its first-quarter results. Total revenue increased to $12.3 billion, up 17.2% YOY. Underlying profit grew by 8.2% YOY to $1.1 billion. EPS was 55 cents, up 7.8% YOY.
CEO Carlos Brito said, “Our business is off to a very strong start in 2021. We delivered top-line ahead of pre-pandemic levels, as beer volumes were up by 2.8% versus 1Q19 with healthy revenue per hl growth. EBITDA increased by 14.2% year-over-year, even in the context of ongoing COVID-19 related restrictions.”
Brito also announced he would be stepping down after 32 years in the company and named Michel Doukeris as the new CEO effective July 1, 2021.
Anheuser Busch has struggled with declining beer consumption rates over the past few years. Therefore, management has launched the new “Beyond Beer” category to reduce sales dependence on traditional beers. The new category includes canned wine, cocktails, hard seltzer, cider, and flavored malt beverages.
Over the past 12 months, BUD stock surged nearly 42%, and gained over 12% so far this year. BUD’s forward P/E and P/S ratios stand at 25.5 and 3.27, respectively. Buy-and-hold investors would find better value around $75 or even below.
Sin Stocks: British American Tobacco (BTI)
52-Week range: $31.60 – $41.14
Dividend yield: 7.5%
United Kingdom-headquartered British American Tobacco is a multi-category consumer goods company that provides tobacco products (conventional cigarettes) and reduced-risk products, including vapor, tobacco heating products, and modern and traditional oral products.
BTI announced its full-year 2020 financial results on Feb. 17. Adjusted revenue increased to 25.78 billion pounds sterling. Profit from operations amounted to 11.37 billion pounds sterling, rising 4.8% YOY. Finally free cash flow after dividends was 2.55 billion pounds sterling, up 32.7% YOY.
CEO Jack Bowles stated, “Last year we increased the number of consumers of our non-combustible products by 3m to 13.5m, doubling the rate of consumer adoption in the second half of 2020. We have excellent momentum in New Categories, with accelerating volume and value share gains.”
BTI stock currently hovers at nearly $40, up by 2% over the past 12 months. But it is up 6.9% YTD. Forward P/E and P/S ratios stand at 8.8 and 2.5, respectively. Put another way, British American Tobacco is an attractive sin stock for value investors due to its low valuation and high dividend yield. A healthy balance sheet and solid financial performance have led to decades of dividend payments, which are likely to continue well into the future.
Constellation Brands (STZ)
52-week range: $160.63– $244.75
Dividend yield: 1.3%
Victor, New York-based Constellation Brands is the largest multi-category alcohol supplier stateside. The business owns a portfolio of Mexican beer trademarks, including Corona and Modelo. The company also has a 37%-stake in the Canadian cannabis group Canopy Growth (NASDAQ:CGC).
At the beginning of April, STZ announced its Q4 2021 results. In the fourth quarter, the top line grew by 3% YOY to $1.953 billion. Net income and diluted EPS was $382.9 million and $1.95, respectively, representing a 4% decline YOY. Free cash flow was $1.9 billion for the quarter.
Garth Hankinson, CFO of STZ said that “In fiscal 2022, we expect to continue to have significant capital allocation flexibility, which will enable ongoing progress in returning cash to shareholders while making strategic investments to support long-term growth opportunities.”
STZ stock currently hovers at $237, up 9% YTD. It has surged 32% over the past 12 months. STZ stock has forward P/E and current P/S ratios of 23 and 5.4, respectively. A potential decline toward $230 would improve the margin of safety for investors in Constellation Brands.
Sin Stocks: Draftkings (DKNG)
52-week range: $27.54 – $74.38
Boston, Massachusetts-based DraftKings is a leading digital sports entertainment and gaming company. The firm provides users with daily fantasy sports, sports betting, and iGaming opportunities.
DraftKings released its first-quarter financial figures in early May. Revenue increased 253% YOY to $312 million. The company reported a $346 million net loss in the first quarter, compared to $69 million a year ago. Net loss per share increased to 87 cents. The company ended the quarter at $2.8 billion in cash and equivalents.
The current regulatory momentum in the U.S is fast shifting towards the legalization of online sports betting and iGaming. Through its suite of leading sports betting apps, DraftKings is likely to grow revenues in future quarters.
However, competition is also growing in online gambling. While this sin stock has explosive long-term growth potential, it has not yet transformed revenue growth into profitability. Gaining new customers in the online gambling space requires significant expense and investment.
DKNG stock currently hovers at $53, up 14% YTD. It has gained 35% over the past 12 months. DKNG stock trades at a P/S ratio of 26, making it overvalued for an unprofitable company. A potential decline toward $50 would offer better value for buy-and-hold investors.
Las Vegas Sands (LVS)
52-Week range: $42.58 – $66.77
Las Vegas, Nevada-based Las Vegas Sands is the world’s largest operator of fully integrated resorts, featuring casino, hotel, entertainment, and convention center operations. It operates eight properties in the U.S. and Asia with over 50,000 employees.
The casino operator released first-quarter financial results on April 21. Net revenue declined 16% YOY to $1.2 billion. Net loss skyrocketed to $342 million from $51 million a year ago. Adjusted loss per diluted share was 25 cents, compared to a loss of per share of 9 cents in the prior-year quarter. Unrestricted cash balances as of March 31 were $2.07 billion.
In March 2021, LVS announced to have entered into “definitive agreements to sell its Las Vegas real property and operations for an aggregate purchase price of approximately $6.25 billion.” The transaction is expected to close by late 2021.
CEO Robert G. Goldstein commented, “Our industry-leading investments in our team members, our communities, and our market-leading Integrated Resort offerings position us exceedingly well to deliver growth as these travel restrictions eventually subside and the recovery comes to fruition.”
LVS stock is down around 8% YTD. The stock price hovers around $55, where it was a year ago. The company’s forward P/E and P/S ratios are 147 and 12.4, respectively.
Analysts expect the recovery to be slow, especially in Asia. China seems reluctant to resume travel and tourism back to pre-pandemic levels. Thus, gambling revenues from Macau and Singapore will likely be subdues in the near future. Potential investors might want to wait for a pullback toward the $50 level or even below.
Sin Stocks: Raytheon Technologies (RTX)
52-week range: $51.92– $89.98
Dividend yield: 2.3%
Raytheon Technologies is a leading aerospace and defense company that was born from the merger of United Technologies and Raytheon. The company has roughly equal exposure to the commercial aerospace manufacturing market as a supplier and to the defense market as a prime and subprime contractor.
The company announced first-quarter results in late April. Total revenue came at $15.25 billion, representing a 16% decline YOY. Net income was $753 million, compared to a net loss of $83 million in the prior-year period. Adjusted EPS was 90 cents.
Operating cash flow from continuing operations was $723 million, and free cash flow stood at $336 million. Analysts concurred that the recovery in the commercial aerospace market has been a bit slower than expected.
CEO Greg Hayes said, “Earlier this month marked the one-year anniversary of our transformational merger, and our successful execution on the integration to date has enabled us to increase our gross cost synergy target by $300 million to $1.3 billion. Our strong cash position and positive outlook also allow us to increase our 2021 share buyback plan from $1.5 billion to at least $2 billion and raise our second quarter dividend by over 7 percent.”
RTX stock currently hovers close to its record high of $89.98. YTD, it is up nearly 25%. Forward P/E and current P/S ratios are 24 and 2.2, respectively. This sin stock offers investors an attractive way to play the commercial aviation and defense market. A decline toward $85 would improve the margin of safety.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.