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The Seven Most Profitable Sin Stocks In The World
The Seven Most Profitable Sin Stocks In The World
Sin stocksare businesses with an immoral or unethical approach to making money. Sin stocks 2018 are solid investments with steady returns in both bull and bear markets.
ASin Stocks ETFwould be an easy choice for investors but isnt the best choice. A well-chosen sin stock can capture market trend, provide diversification within your portfolio and increase your portfolios yield. Well narrow down the choices.
TheSin Stock 2018outlook is robust. Economic trends, demographic trends, and government spending are only a few of catalysts driving these stocks.
OurSin Stock Listincludes seven (7) names with one thing in common; they trade at significant discounts to their value because the average investor doesnt like them. Most have above average dividend yield, they all have earnings growth and a positive outlook for bull and bear market performance.Click Here To Go Straight To The Top 7 Sin Stocks
What aresin stocks, exactly, you may ask? Also known as vice stocks they are stock from companies engaged in business or associated with activities that are considered too unethical or immoral by todays standards. The businesses issuing these stocks are frowned upon because they make their money by exploiting human weakness, but were not here to judge.
Sin stocks includethings like tobacco, alcohol, gaming, and firearms, all sectors that do well regardless the state of global economics. They do well in all economic conditions because the products and services they provide are the last if ever, to be cut from personal budgets. To be clear these stocks are the exact opposite of so-called ethical investing, investing with the intention of helping humankind.
What makes vice stocks so attractive, no pun intended, is that they can make money during economic downturns when no one else can. A sin stocks ETF may be a good choice but to get the best return it is wise to look at individual names. Because sin stocks span the range of business type ETFs in this category, like the Advisorshares Vice ETF, tend to be over-diversified and give a poor return on investment.
What you will realize is that many of the names on our list could be classified in another way. For example, gaming companies are really in the hospitality business, and firearms/weapons manufacturers are in the defense business, two disparate sectors with a positive long-term outlook for earnings growth.
Why buy thetop sin stocks? Because they are sound investments. These companies are engaged in business where customers and steady traffic are virtually guaranteed. Along with that, they face tough regulatory hurdles that limit competition within the respective industries. These barriers to entry further ensure steady anduninterrupted revenue. Our research also shows that these stocks tend to be undervalued allowing investors with the savvy to buy them discounted entry to a sector with a record for delivering value.
How dosin stocksperform in a bear vs. bull market? Very well. Because these stocks have reliable revenue streams, they do not suffer the same earnings decline as the average S&P 500 company during economic downturns. This means stock prices for sin stocksfall less in bear marketsand, in some cases, may even rise as earnings continue to grow. The question well answer now is, what are the best sin stocks to buy in 2018,
Phillip Morris Phillip Morris is a leading tobacco and cigarette producer, a bit of a concern in todays age ofdeclining tobacco use, but those concerns are mitigated by the companies foray into smokeless tobacco. What investors need to remember is that tobacco use is still widespread, and Phillip Morris is the market leader when it comes to theworld of smokeless tobacco.
Phillip Morris, more than any other tobacco company, has been investing in smokeless tobacco products over the past few years. It sees increasing use in countries where the products are available and new products like the heat not burn smokeless device arescheduled for launchin the coming year. The companys management is estimating production capacity of 100,000 million smokeless units annually by the end of this year, a ramp-up in production that will fuel revenue into the foreseeable future.
The stock has been in a downtrend for just over a year as traders seek out stocks with better growth outlook What this has done is increased dividend yield to over 4.20% on a stock with sustained revenue growth, ahistory of dividend increasesand a positive outlook for revenue and earnings growth. Quite the opportunity for value-minded income investors.
The primary reason earnings growth has been lackluster for Phillip Morris is the dollar. The dollar has been very strong in recent years,hurting the earnings powerof companies with global exposure such as Philip Morris. Now that the dollar has retreated from long term highs we expect to see earnings growth begin to pick up and eventually lead to share buybacks and an increase in the dividend. Our 12-month target is near $125, 25% gain from todays prices, but longer term we see this stock moving up to $140.
Wynn Resorts Wynn Resorts suffered a major blow that has provided new investors a chance to buy into this global hospitality and gaming brand at a discount. The misconduct scandal that cost Steve Wynn his position at the helm of his trademark company has caused share prices to fall more than 15%. What investors need to understand is that the ousting will have little impact on earnings and has opened the door for atakeover or break-upof the company.
Top names in the industry such as MGM Resort International, Las Vegas Sands, and Hong Kong-based Galaxy Entertainment Group areall possible buyers; opportunity investors can take advantage of. What makes the company so attractive, aside from its large global footprint and multibillion-dollar business, is its positioning in key hospitality markets such as Macau and Las Vegas. This positioning would allow immediate entry or expansion within the most lucrative, and hard to enter, hospitality markets on the planet, no little thing for a company looking for growth and profits.
Another possibility is a break-up of the company. By our analysis, the individual assets could fetch as much as $250 per share, a 40 % premium with shares trading near $175. The company has already sold more than5% of its shares to Galaxyand is in talks to possibly sell assets in Massachusetts, so anything is possible. In the meantime, investors can pad their balances with the safe, but small, dividend yield of 1.1%.
United Technologies United Technologies is adiversified manufacturing conglomerateoperating in the defense and private sector. It operates in four segments; Pratt & Whitney, UTC Climate, Aerospace Systems and OTIS. Pratt & Whitney builds engines for military and commercial aircraft, UTC Climate builds climate control and security systems (for the private sector), Aerospace builds components (electronics) for military and commercial aircraft, and OTIS is the worlds largest elevator manufacturer (also for the private sector).
The company is not a dividend aristocrat but does have a longhistory of dividend increasesdating back more than ten years. At current share prices, near $125, the yield is just over 2% and more than covered by the companies free cash flow. Revenue, free cash flow, and earnings have been on the rise and are expected to continue improving over the next 5 to 10 years, keeping the dividend very safe. Earnings growth is driven by global economic expansion and increaseddefense spending in the US and its NATO allies.
Management expects to see steady revenue growth in the range of 4% to 6% over the next few years, but we think that estimate is too low. Tax reform, global trends and defense spending equal big gains for this company that we think will average closer to 8%. Our 12-month target for this stock is near $140 but could be exceeded if earnings exceed consensus on a regular basis. Longer term we see this stock moving up to $200.
Anheuser-Busch InBev Anheuser-Busch InBev, AB InBev, is the worlds largest manufacturer, supplier, and wholesaler of beer. Its brands include the popular Budweiser, Stella Artois, Corona and many others. Regarding market share, ABInBev commandsmore than 25%and is the powerhouse of the industry. While it does face headwinds, beer consumption is slowing on a global scale, AB InBev has a tremendous business (600 million hectoliters annually, about 100 trillion pints), has at least 5 beers on the global top ten best sellers list (depending on who you ask) and pays a healthy dividend yielding nearly 4% with shares trading near $107.
The decline in beer consumption is mitigated by one thing; quality. While the amount of beer that is being consumed on a per capita basis is slowly eroding, the money spent on that beer is increasing as drinkersupgrade to higher quality, higher cost craft-style brews. This trend is expected to continue in the more developed portion of the world where consumption has slowed the most while lower cost easier-to-access brews will dominate markets in the less developed regions of the world.
The dividend payout ratio, the ratio of dividend distribution to available cash flow, is a bit high which maycause some concernbut we arent worried. At first glance, the 108% payout ratio suggests the distribution could be cut as the company is paying out more than it makes. What the ratio doesnt show is that the data has been skewed by therecent SABMiller acquisitionwhich, when factored out, reduces the payout ratio to 65% and much healthier levels.
The stock has been in a downtrend over the past year and now trading near a long-term low. This low, near $105, is an historic entry point into this global brewing giant. We expect to see shares begin to move up by late summer 2018 as economic growth begins to accelerate and then reach our target of $125 by the end of 2018.
Constellation Brands Constellation Brands is a multinational manufacturer and distributor of all things alcoholic. The companys offerings span the spectrum from beer to wine, to spirits and fortified beverages giving it ample coverage in all segments as well as diversification from beer. The company has been delivering strong earnings growth over the past three years as organic and acquired expansion fuel revenue. Growth is expected to continue over the next 5 to 10 years, in tandem with global economic expansion.
Constellation Brands isnt a leading dividend payer, and it doesnt have a long history of payments, but it does pay a substantial distribution (about 2% with share price near $230) and has areputation for dividend increase.The company started paying a distribution in 2015 and has increased the payment every year since then, good news for DGIs (dividend growth investors) looking for exposure to sin. The average dividend increase is above 30% annually and this year is not expected to be an exception.
The payout ratio is a very comfortable 30% which leaves plenty of room for another increase without the need for income growth. Earnings growth is expected in the low to mid-teens over the next two years which will provide plenty of cash for additional dividend growth in 2019 and 2020 as well.
Constellation Brands is trading at a bit of premium with prices at23X forward earningscompared only 20x forward earnings for AB InBev, but its worth it. AB InBev is a good choice (better yield) but doesnt have the same growth outlook and expectation for dividend increases that come with Constellation Brands.
Morgan Stanley recently reiterated their overweight rating on the stock due to its high top-line growth potential, good news because it will keep new money flooding in, but we think their estimates are too low. Our twelve-month target is just shy of $300 and likely to be exceeded if economic expansion accelerates in 2018 as it is expected to do.
Starbucks While not a traditional sin stock, the way America and the world drink coffee is sinful giving Starbucks a place on our list.
The number of Americans drinking coffee on a daily basisjumped 10% from 2016 to 2017, the largest annual increase in 60 years of data, bringing the total to 40% of the population. These metrics show the scale and potential for growth coffee has, a scale that will help Starbucks deliver earnings and dividends long into the future. Coffee consumption is a bit less on a global scale but is seeing significant growth as well, just over 2% compound annual growth rate, and expected to continue growing.
Starbucks is not a dividend aristocrat but does have a history of dividend payments and increases. The distribution hasbeen raised each yearsince its inception eight years ago and is expected to be raised again at the end of fiscal 2018. The payout ratio is a low 35% that, when coupled with steady and reliable EPS growth, means the company couldcontinue raising the distributionevery year for more than a decade without causing itself undue stress.
The stock has been stuck in a trading range over the past three years as growth stalled (high single digits versus high double digits) but we expect to see that trend broken this year. Earnings growth is on the rise again, fueled in large part byexpansion into China, and will carry the stock higher over the long term. We expect to see the stock trade up to the top of the range, near $65, by the end of the summer and then move up to $77.50 by the end of the year.
CannaRoyalty CannaRoyalty is a relatively new player in the cannabis industry but one that will help shape its future. The company is engaged in the business of investment, development, branding, and distribution of marijuana-based products and technologies. Headquartered in Canada, it has been operational for just over two years but in that time delivered stellar revenue growth. The most recently reported quarter sawrevenue soar nearly 470%as the company expands its operation into California, the US newest and largest legal market for recreational marijuana.
The stock trades OTCQX so there is a bit more risk than you get with well-established businesses in lower-profile industries but that risk is mitigated by the industry it is in. Marijuana is a multi-billion dollar industry in its early growth phase and expected to see as much as560% growthin the US alone as legalization sweeps the nation. Companies like CannaRoyalty, with exposure to the industry at every level, will do very well in that environment.
Share prices for CannaRoyalty jumped 50% in January 2018 as legalization came into effect in Canada, California and other US states. Now trading near $3.50 we expect to see this stock double before the end of the year. Where it goes from there depends on US legalization. If (when) more states, or the nation as a whole, adopt legal weed this stock will easily see gains counted in thousands of percentage points.
Sin stocks are like the investments we love to hate. We hate them because they make money by exploiting weakness, we love them because they make money on a regular and consistent basis. These stocks engage in business that people, some people, believe are unethical. They take advantage of humanities baser emotions which, in stock market terms, means steady and reliable revenue, income and dividends. A Sin stocks ETF exists but isnt a great choice; the fund is too new, the market cap is too small, and the yield is a miserable 0.15%. By carefully selecting the right sin stock for your portfolio you can benefit from sin.
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