Sin stocks are shares in companies that are involved in activities that some people may consider unethical or immoral. There are a wide-range of companies that can be considered to be sin stocks. The obvious are alcohol, tobacco and firearm companies. In addition, you could also include gaming companies, defense contractors and some pharmaceuticals. Some analysts would even go so far as to include soft-drink makers in the mix.
While I understand the ethical concerns that some investors have with these stocks, there are solid reasons to consider adding some sin stocks to your portfolio.
For one thing, demand for their remains constant in any economic environment. In fact, it is often the case that demand for many products manufactured by “sin companies” is stronger in times of economic uncertainty.
The reason why sin stocks can do so well in any market condition is that people typically buy their products regardless of what is happening with the economy. Take cigarettes and alcohol for example. They are part of people’s regular buying habits regardless of how the economy is doing. Gamblers are also going to be active in any market.
Other sin stocks benefit from government dependence. Consider the defense industry. Defense stocks are always going to find demand for their goods and services. Even with the scheduled cuts to the defense budget this year, the market is huge and foreign demand remains strong as well.
Sin stocks are also very insulated from new competition. The barrier of entry to these industries is huge. Imagine what it would take to start a new alcohol or cigarette company. It is almost impossible. Casinos enjoy the same sort of insulation as do defense contractors. New competition is almost impossible in the majority of these industries.
Now that we have discussed why investors should consider sin stocks, let's look at a couple that are good buys.