Trillionaire Term of the Day - March 6, 2009 - Sin Stocks

Sin Stocks

Sin stocks are stocks of companies that produce products that are associated with activities widely considered to be immoral or unethical. Some examples of these sinful activities could include the production and distribution of alcohol, weapons, sex-related products, and tobacco.

Phillip Morris (PM) and Altria (MO) are two of the best-known tobacco companies.  Anheuser-Busch (BUD) and Diageo (DEO) are some of the biggest alcohol companies.  Playboy Enterprises (PLA) is one of the most famous sex-related companies, while MGM Mirage (MGM) and Wynn Resorts (WYNN) are two giant casino companies.  Northrop Grumman (NOC) is also one of the biggest weapons manufacturers. 

Sin stocks have a reputation for being great investments during recession, as these stocks provide a safe haven during slow economic growth periods.  There is a lot of debate as to which stocks and which industries should be put into the “sin” category, and everyone has his own criteria of what should be considered sinful.  But, it is clear to see that some sin stocks do hold up well during recessions.  For example, tobacco companies like Altria (MO) usually hold up very well during economic slumps.  The logic behind Altria’s relative strength can be attributed to the fact that smoking is addictive, and people will not stop smoking because of a weakening economy.  On the contrary, people might actually begin to smoke more during recessions due to increased stress levels.

But, sin stocks don’t always hold up during recessions.  One sin industry that has been crushed due the credit crisis is the resorts and casino industry.  MGM Mirage (MGM) is currently off of its 52-week high by 96.92%, and Wynn Resorts (WYNN) is off of its 52-week high by 82.85%! These huge drops in casino company stock prices are understandable though, as people do not have the extra income to spend on gambling anymore.  So, while some “sinful” industries, like tobacco and alcohol, hold up well during recessions, industries like the casino industry struggle mightily. 

Another important issue to think about with sin stocks is whether or not it is morally right to invest in these companies.  For example, every time someone invests in a weapons company like Northrup Grumman, that investor is essentially providing the company with the money to produce more weapons.  Personally, I have promised myself that I will never invest in a weapons company, as I feel like it is unethical to fund the production of bombs and guns that kill people.  Having said this, I own shares of both Phillip Morris and Altria, so I clearly do not feel like funding the production and distribution of tobacco products is as bad as funding the production and distribution of weapons.  People have their own moral feelings about weapons and tobacco though, so it is every investor’s individual choice as to what types of companies are ethically acceptable to invest in. 

If you don’t have a moral problem with investing in sin stocks, you should definitely check out some of the industries and companies that I have mentioned throughout this article.  I highly suggest Altria (MO), and you can expect a Stock of the Day for the company next week.  

Niki Pezeshki

College Trillionaire