The business of catering to vices is doing well and the portfolios of people invested in tobacco, gaming, and alcohol stocks are benefiting.
Earlier this week, we introduced 3 “sinful” stocks, but there are 7 deadly sins altogether. Today, we’ll be covering the rest. No matter what you think about modern-day vices, there’s no denying that companies catering to bad behaviors do quite well, as do their investors.
As we wrote in the first article, the Vice Investor (VICEX) mutual fund is mostly comprised of tobacco, gaming, and alcohol stocks. In the last 5 years the fund is up 140%, and in the last year it’s up 40%. VICEX has also outperformed the S&P 500 for 3 consecutive years.
4. Altria Group Inc. (NYSE: MO)
Despite the American Cancer Society’s warnings about risks associated with smoking, cigarettes remained the largest consumer market in the United States in 2013—worth $66 billion and double the size of beer and cider.
That explains why the Altria Group—the world’s biggest tobacco company, manufacturer of Marlboro and parent company of Philip Morris USA—saw fourth quarter profits jump 32%. Net income rose to $1.1 billion from $836 million a year earlier. In fact, one global market research agency estimates the world market value of the Marlboro brand at $67.5 billion, or 42%, behind only Cola-Cola and AT&T.
Altria’s cigarette segment commands 50% of the US market. Marlboro leads in penetration followed by lesser-known brands such as Merit, Virginia Slims, Parliament, and Benson & Hedges.
Despite experiencing a continued drop in domestic consumption, and higher “sin” taxes, Altria’s stock price has managed to increase sixfold since early 2000.
It also generates a healthy 5.2% dividend and is outperforming the S&P 500, up 8% year-to-date.
5. Smith & Wesson (Nasdaq: SWHC)
You might expect that the fear of more stringent gun control and repeated mass shootings would cause Americans to shy away from gun stocks. Instead, they have ignited a buying spree, with Smith & Wesson as one of the prime beneficiaries.
The company has been manufacturing guns in the US since 1852, with hunters and marksmen accounting for 88% of total revenue. However, 55% can be attributed to sales of handguns and 31% for rifles in the past fiscal year.
The boom in the firearms market propelled SWHC’s share price to double in the past 2 years, rising nearly 90% in 2013. The company is optimistic about the near future as well, raising its fiscal year 2014 revenue guidance to $615 million and earnings per share growth between $1.30 and $1.35. Smith & Wesson sees a compounded annual growth rate of 30% over the next five years.
Shares are up nearly 30% over 6 months and 61% in a year.
6. Wynn Resorts (Nasdaq: WYNN)
The gaming and resort giant Wynn Resorts upped its market share in the island of Macau to 11% late last year. Wynn knows Macau is where the growth in gaming is happening.
The Macau gambling authority reported that the island’s gaming revenue rose 19% year-over-year in 2013 to $45.2 billion, about 7 times the revenue expected from gambling on the Las Vegas Strip. Analysts project the market on Macau will grow 15% to 20% per year over the next 3 to 5 years.
Even without its stake in Macau, Wynn Resorts is sitting on solid financial ground with consistent revenue growth and stock performance, growth in net income, and a healthy cash flow from operations. Wynn’s US destination is luxury casino resort Wynn Las Vegas, which has 4,750 hotel rooms.
Shares of WYNN are up 26% in 6 months and 70% over a year.
7. Tiffany’s (NYSE: TIF)
Diamonds are—have been for years and won’t stop being—a girl’s best friend.
Anyone looking for the best quality need look no further than Tiffany’s—at least, that’s the perception. It is the clear-cut preference of high-end consumers who want to go into a store and gaze dreamily into the display cases, then plunk down a good chunk of money on gold or diamonds or another gemstone. As a result, the luxury retailer’s earnings have increased steadily since 2007.
That will probably happen again in 2014 as the US economy strengthens and more people find jobs. Just as industry revenue, consumer confidence and the number of households earning more than $100,000 plunged in 2008, the opposite is expected to happen as spending of discretionary income gradually increases this year.
While Tiffany’s will certainly be a beneficiary under those circumstances, its more genuine claim to fame this year may be more closely hinged to global affairs. Sales in the Asia-Pacific region increased 18% in 2013 from a year ago and same-store sales there rose 11% over the same time frame—indicative of the rising demand in China and India.
Shares are up 20% over a year and the stock delivers a 1.6% yield on dividends.
The information contained in this article should not be construed as investment advice or as a solicitation to buy or sell any stock. Nothing published by Physician’s Money Digest should be considered personalized investment advice. Physician’s Money Digest, its writers and editors, and Intellisphere LLC and its employees are not responsible for errors and/or omissions.