With global recession fears rising, investors naturally find themselves scrambling for boring, dependable ideas but sin stocks may offer a potentially superior (and more exciting) alternative. To be fair, these ideas may challenge your sensibilities. Please do not mistake these companies as environmental, social and governance (ESG) trades.
However, during hard times, few fundamental catalysts feature as much upside potential as cynicism. Whether tying into everyday addictions (such as caffeine or sugar) or aligning with more serious trends, sin stocks may be one of the few sectors that may survive the incoming malaise relatively intact. Yes, the notion stinks in many ways, and I understand this point well. However, when the smelly stuff hits the fan, you gotta do what you gotta do. On that bright note, below are seven sin stocks to buy.
|IIPR||Innovative Industrial Properties||$111.45|
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One of the most popular soft drink and snack manufacturers, PepsiCo (NASDAQ:PEP) makes for an everyday solid bet. However, as one of the sin stocks that can weather a recessionary storm, few can match its relevance. Not surprisingly, PEP shares gained nearly 5% on a year-to-date basis. While not a great figure by itself, the benchmark equity indices still remain in the red so far this year.
Fundamentally, PepsiCo ranks among the sin stocks to buy because its underlying products tie in with everyday addictions. As the Ohio State University Wexner Medical Center mentioned, “[i]n regular sodas, the sugar causes dopamine releases in the brain, stimulating pleasure centers. For some, it’s not the ingredients that cause the addiction, but the lifestyle habit that leads you to the fridge.”
Stated differently, Pepsi enjoys a captive audience of sorts. And with economic woes brewing on the horizon, consumers might seek cheap pick-me-ups. Therefore, PEP makes for an intriguing case among sin stocks to buy.
As one of the most iconic American companies, McDonald’s (NYSE:MCD) is a powerhouse in the world of western capitalism. With its ubiquity, MCD also makes for a solid purchase for investors seeking a balance between growth and reliability. However, as one of the sin stocks to buy, MCD truly shines.
As with PepsiCo above, McDonald’s fundamental case as a vice trade centers on its core product. As Healthline.com mentioned, “[t]he fact is junk food stimulates the reward system in the brain in the same way as addictive drugs, such as cocaine.” Therefore, it’s no surprise that MCD represents one of the few publicly traded securities that are in positive territory for the year.
Moving forward, McDonald’s can also benefit from the trade-down effect. Essentially, those that are enjoying nights out at fancy restaurants may start trading down to fast-food joints. Cynically, this dynamic should boost MCD, making it one of the sin stocks to buy.
Philip Morris (PM)
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Generally speaking, people regard soft drink and fast-food providers as “acceptable” sin stocks. In other words, an occasional indulgence in a sugary beverage to smooth down a juicy burger doesn’t arouse controversy. However, nobody speaks in those terms regarding tobacco players like Philip Morris (NYSE:PM). If anything, social forces attempt to stifle the industry.
According to data from the Centers for Disease Control and Prevention, smoking rates declined significantly over the years. On paper, that’s bad news for sin stocks related to the tobacco industry. However, should economic woes materialize, it’s very possible that smoking rates will increase from current lows.
Admittedly, this talking point ties into unsavory concepts. However, the harsh reality is that economic downturns cause stress – sometimes deeply troubling stress. Under these conditions, adults make certain adult choices for relief. Cynically, this may lead to an uptick in demand for PM stock.
Innovative Industrial Properties (IIPR)
On the other end of the adult liberties segment stands what I’ll diplomatically term the “botanical” industry. In recent years, speculation toward the federal legalization of the underlying green material spiked certain equity units. Unfortunately, the narrative didn’t quite pan out. As well, macroeconomic pressures hurt the sector, including indirect players like Innovative Industrial Properties (NYSE:IIPR).
Rather than grow the botanicals themselves, Innovative Industrial provides the services and resources for enterprises that do. On a moral level, then, you can mitigate the aura of sin stocks if you like. More importantly, IIPR appears to make plenty of sense given its relative discount. On a trailing-year basis, IIPR hemorrhaged over 59% of equity value.
True, that’s not a great sign. Still, shares gained 20% in the trailing month, reflecting strong near-term momentum. As well, IIPR benefits from fundamental realities. Again, with stress levels likely to rise, folks may need a way to relax. Innovative Industrial helps those who help us – metaphorically speaking of course!
Boston Beer (SAM)
One of the most popular breweries in the U.S., Boston Beer (NYSE:SAM) catapulted to fame because of its Samuel Adams beer brand. Delightfully robust, Sam Adams won critical acclaim within the industry. According to a company press release, the brand won an unprecedented 125 international awards in its over three decades-long history.
Fundamentally, Boston Beer obviously makes a case for sin stocks to consider because of its flagship product. It’s not a comfortable topic to discuss. However, scientific research demonstrates that the brain’s reaction to beer (I’d add good beer) makes it difficult to enjoy it judiciously. Essentially, we’re hardwired to drink more than one. Naturally, this cynically benefits SAM stock.
The other factor of course focuses on the worsening economic environment. With major blue chips announcing or planning to implement huge layoffs, a rise in imbibing will likely materialize. To be clear, I’m not rooting for this dynamic. It’s just the reality of alcohol-related sin stocks at the moment.
One of the classic sin stocks to buy, Anheuser-Busch (NYSE:BUD) is a stalwart in the brewery business. The company’s flagship product is Budweiser, which carries the unofficial title “The King of Beers.” Personally, I vigorously dispute this claim but that’s neither here nor there. Based on surveys and sales statistics, Bud and Bud Light routinely rank top among American consumers.
As an investment in sin stocks, though, Anheuser-Busch may be quite a royal concept. Essentially, the company stands to benefit from the trade-down effect. Should economic pressures skyrocket, consumers are unlikely to go cold turkey in one swift transition. Instead, they’ll trade down their expensive beer for cheaper alternatives.
Just as importantly, BUD sits on a relative discount. Since the beginning of the year, shares dipped over 12% in equity value. However, in the trailing month, they’re up nearly 22%. Investors may be recognizing the cynical opportunity, meaning you might want to act fast.
RCI Hospitality (RICK)
Perhaps the most classic example of sin stocks to buy, RCI Hospitality (NASDAQ:RICK) represents an interesting idea. I don’t recommend necessarily looking up what the company does because it might lead to misunderstandings – it was for research, honest! Diplomatically, I’ll just say that RCI is a specialist in the fabric-free industry.
If you didn’t quite get the euphemism, let’s put it this way. If you’re an ESG investor, RICK represents the antithesis of ESG. On the social side, controversies regarding exploitation exist. It’s not a family-friendly idea to be sure. What it is, though, is incredibly relevant on a cynical basis. According to precedent from the Great Recession, these establishments perform well amid economic downturns.
Psychologically, such businesses may appeal to those who need some thrill in their lives after getting beaten down by corporate politics and pink slips. It’s not a savory idea among sin stocks but as history shows, it gets the job done.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.