Sin stocks are shares of companies operating in gambling, tobacco, alcohol, defense, cannabis, as well as adult entertainment industries. Due to personal convictions, many investors may want to avoid these industries. And that’s understandable. Yet, if you are interested to know the potential offered by such shares, keep reading as I discuss seven sin stocks to buy in October.
Historical evidence on the performance of these companies highlights that sin stocks have provided substantially higher returns than the broad market in general. For instance, Research by UBS (NYSE:UBS) suggests that a “benchmark of the largest 50 ‘sin’ stocks has outperformed the MSCI World by nearly 5% per year.”
In addition, sin stocks have proven to be resilient amid economic turbulence. This is not surprising, as consumers drink, smoke or gamble in both good times and bad. For example, despite lockdowns and social distancing, alcohol sales skyrocketed by 55% in late March at the beginning of the coronavirus pandemic.
Recent research by Greg M. Richey of the University of California says, “Bad-news events have a lesser impact on sin stock return volatility than do good-news events.” Sin stocks are therefore considered defensive and tend to remain more stable under tough economic conditions.
With that information, here are seven sin stocks that could bring robust returns during the winter months.
- Altria (NYSE:MO)
- Amyris (NASDAQ:AMRS)
- MGM Resorts International (NYSE:MGM)
- Penn National Gaming (NASDAQ:PENN)
- Scotts Miracle-Gro (NYSE:SMG)
- Smith & Wesson Brands (NASDAQ:SWBI)
- Sturm Ruger & Company (NYSE:RGR)
Sin Stocks: Altria (MO)
52-Week Range: $35.83 – $52.59
Richmond, Virginia-based Altria needs little introduction. The group’s portfolio includes well-known brands including Philip Morris USA, John Middleton, and U.S. Smokeless Tobacco. In recent weeks, it has agreed to sell its wine business, Ste. Michelle. Altria also holds equity investments in Anheuser-Busch InBev (NYSE:BUD), marijuana group Cronos Group (NASDAQ:CRON), and e-cigarette firm JUUL Labs.
The company released second-quarter financial results in late July. Net revenue increased 9% year-over-year (YOY) to $6.9 billion. Earnings per diluted share came in at $1.23, growing 12.8% from the prior year quarter. Cash and equivalents ended the quarter at $1.9 billion.
On the results, CEO Billy Gifford cited, “This updated guidance reflects continued confidence in our tobacco businesses, investments in smoke-free products and the expected impact of the recently announced agreement to sell our Ste. Michelle Wine Estates business.”
MO shares hover at $46 territory. So far this year, they have returned over 10%. The stock currently trades at 10x forward earnings and 4x trailing sales. Altria also offers a generous dividend yield of around 7.9%.
The group’s enhancement plans focusing on non-combustible products and cannabis are expected to create tailwinds for long-term growth. Management updated full-year earnings per share expectations to a range of $4.56 to $4.62, indicating a growth of 4.5% to 6% from $4.36 recorded in 2020. A decline below $45 would offer an opportune entry point.
52 week range: $1.88 – $23.42
Emeryville, California-based Amyris is not a pure-play sin stock. However, it is likely to be of interest to cannabis investors. Synthetic biotechnology company Amyris is well known for squalane, which is “Made from sustainable sugarcane, [and] is a molecular match for the moisture that’s already a part of human skin.”
The product is widely used in producing high-end moisturizers. High-margin revenue from Biossance, Amyris’ own moisturizer brand, is also increasing at a rapid pace. Amyris boasts 12 more ingredients already on the market.
Through fermentation technology, Amyris “recently commercialized a clean, sustainable, fermentation based CBG (cannabigerol), a non-psychoactive cannabinoid.” Wall Street has been excited about this scientific development.
Manufacturing synthetic cannabinoids could revolutionize the cannabis industry by making it less dependent on expensive growing facilities. Earlier in the year, Amyris bought natural skincare brand Terasana to offer beauty products focused on such sustainably sourced cannabinoids.
Amyris released Q2 results in early August. Total revenue increased 74% YOY to $52 million. Adjusted net loss came in at $49 million, or 15 cents per diluted share, compared to an adjusted net loss of $58 million, or 31 cents per diluted share, in the prior-year period. Cash at the end of the quarter stood at $215 million.
CEO John Melo remarked, “We delivered record underlying revenue driven by record consumer revenue while significantly improving margins year-over-year. Two of our homegrown clean beauty brands, Biossance and Pipette, delivered record revenue with Biossance doubling revenue versus the prior year quarter.”
AMRS stock currently hovers at $13.50 territory. It’s up more than 120% year-to-date (YTD) and almost 400% over the past year. Yet the shares are down 40% from their peak in March, offering a better opportunity for interested investors. AMRS shares trade at around ten times current sales.
Sin Stocks: MGM Resorts International (MGM)
52-Week Range: $19.55 – $46.07
MGM Resorts owns and operates 31 casino resorts in various states in the U.S. and several locations in China. The company also owns 50% of the U.S. sports betting and iGaming venture, BetMGM.
It announced Q2 financial results in early August. Net revenue surged 683% YOY to $2.3 billion. GAAP net income came in at $105 million, compared to a net loss of $857 million in the prior-year quarter. MGM reported an adjusted loss per diluted share of 13 cents, compared to $1.52 in the prior-year quarter. Cash and equivalents ended the quarter at $5.6 billion, and total liquidity stood at $9.9 billion.
“We delivered a strong second quarter, driven by robust demand and productivity efforts across our domestic portfolio,” said CEO Bill Hornbuckle.
In accordance with expansion efforts in Asia, MGM and Orix Corp (OTCMKTS:ORXCF) submitted a proposal in July for their first casino resort in Japan. Recently, the online gambling group DraftKings (NASDAQ:DKNG) made a $22.4 billion takeover bid for Entain (OTCMKTS:GMVHY), BetMGM’s partner in the U.K.
MGM’s management said it would work with both DraftKings and Entain as the deal potentially moves forward. Meanwhile, MGM and BetMGM have become official partners in the American Gaming Association’s “Have A Game Plan” mission.
Given the current positive market sentiment for MGM stock, interested investors should keep it on their radar. MGM stock hovers at $44, up around 40% YTD. The shares trade at 3.1 times current sales and 3.2 times book value.
Penn National Gaming (PENN)
52 week range: $52.09 – $142
Wyomissing, Pennsylvania-based Penn National Gaming is the operator of gaming and racing properties and video gaming terminals stateside. It operates retail sports betting across the company’s portfolio, as well as online sports betting, online social casino, bingo, and online casinos.
Penn released Q2 results in early August. Total revenue surged 405% YOY to $1.55 billion. Net income came in at $199 million, or $1.17 per diluted share, compared to a net loss of $214 million, or $1.69 loss per diluted share, in the previous year. Cash and equivalents ended the period at $2.3 billion.
Following the announcement, CEO Jay Snowden cited, “Penn National delivered a strong second quarter that exceeded our pre-announced results from June 24, 2021… The strong results were driven by exceptional performance across our portfolio of core gaming business properties.”
Penn is actively expanding its reach in the sports betting market. The company has acquired Score Media and Gaming (NASDAQ:SCR) and took a position in Barstool Sports. In addition, it has recently taken a 7% position in Australian sports betting company PointsBet Holdings (OTCMKTS:PBTHF).
PENN stock currently hovers around $75. It’s down more than 12% so far this year. PENN shares trade at almost half their 52-week high in March, which may offer interested investors a good opportunity to invest. They currently trade at less than 12 times forward earnings and 2.5 times trailing sales.
Sin Stocks: Scotts Miracle-Gro (SMG)
52 week range: $139.20 – $254.34
Marysville, Ohio-based Scotts Miracle-Gro is the largest producer of gardening and lawn-care products stateside. It is also the leading supplier of cannabis-growing equipment in North America through its Hawthorne business.
In August management announced, the creation of a newly formed subsidiary, The Hawthorne Collective, which will focus on strategic minority investments in areas of the cannabis industry not currently pursued by The Hawthorne Gardening Company.” For instance, Hawthorne has already provided a $150 million convertible loan to Canadian cannabis investment and acquisition firm RIV Capital (OTCMKTS:CNPOF).
Scotts Miracle-Gro issued Q3 fiscal FY21 results in early August. Total revenue increased 8% YOY to $1.61 billion, driven by a 48% increase in the Hawthorne segment. The company reported non-GAAP adjusted earnings of $229 million, or $4 per diluted share, compared with $217 million, or $3.80 per diluted share, in the previous year. Cash and equivalents ended the quarter at $58 million.
CEO Jim Hagedorn remarked, “Despite difficult year-over-year comparisons, we saw record Q3 sales at Hawthorne with growth in all categories. Our U.S. Consumer business continued to excel despite a modest decline in sales compared with last year’s record levels.”
SMG stock appeals to those investors looking for the safety of a large-cap stock with a foothold in the growing cannabis industry. It has also built a new R&D facility to explore how their fertilizer products impact cannabis growth.
The stock around $145 territory, down 26% YTD. Thus, interested investors have an opportunity to go long on SMG shares at a discounted price. The shares trade at 17 times forward earnings and 1.6 times sales.
Smith & Wesson Brands (SWBI)
52-Week Range: $14.50 – $39.61
Springfield, Massachusetts-based Smith & Wesson Brands is the largest firearms manufacturer in the country. It offers a range of handguns, long guns, and suppressor products.
Smith & Wesson released Q1 FY22 results in early September. Net revenue increased almost 20% YOY to $275 million. Non-GAAP net income was $77 million, or $1.57 per diluted share, up 65% and 89%, respectively, compared to the prior-year quarter. Cash and equivalents ended the quarter at $171 million.
CEO Mark Smith remarked, “Our flexible manufacturing model and strong consumer preference for our products at the retail counter combined to deliver the highest first quarter net revenue in the company’s history, marking the fifth consecutive quarter of top line records.”
The past year has seen an uptick in the desire for buying arms for personal protection. While the growth in gun sales seems to be slowing now, it still remains at a high level. Smith & Wesson has almost tripled in value since the beginning of 2020.
SWBI stock currently hovers around $21, about half the value of the record high of $39.61 seen in early July. So far this year, SWBI stock has gained 18%. Investors who can tolerate some volatility could consider investing in SWBI stock below $20.
Sin Stocks: Sturm Ruger & Company (RGR)
52 week range: $58.70 – $92.49
Our final company — the Southport, Connecticut-based Sturm Ruger — is also a firearms group. Its product categories include rifles, pistols, and revolvers.
Sturm Ruger announced Q2 results in early August. Total revenue surged 54% YOY to $200 million. The company reported a net income of $44 million, or diluted earnings of $2.50 per share, compared to a net income of $19 million, or diluted earnings of $1.05 per share, in the prior-year quarter. On July 3, cash and short-term investments totaled $174 million.
Following the announcement, CEO Christopher J. Killoy remarked, “The continued strengthening of our workforce, our increased productivity, and strong demand allowed us to achieve outstanding financial results.”
Gun sales hit an all-time record in 2020. The National Shooting Sports Foundation (NSSF) estimates that around 8.4 million people bought their very first firearm last year. Consumer demand for firearms still remains at a high level across the country.
Despite operating in a volatile industry subject to political and regulatory risks, Ruger’s business looks like it has solid growth potential. Ruger also offers a generous dividend yield of about 4.25%. RGR stock trades at $73 territory, up 11% YTD. They are currently trading at less than two times trailing sales.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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 three 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