Use access key #2 to skip to page content.

TMFBigVice (95.84)

The Top-Rated Sin Stocks

Recs

5

August 12, 2008 – Comments (5) | RELATED TICKERS: ITY , TGI , ERJ

From my article published today...

The table didn't translate well, so click here for the original article.

Todd


--- 

The Top-Rated Sin Stocks
By Todd Wenning
August 12, 2008

"Sin stocks." The very phrase conjures up either excitement or disdain. Tobacco, alcohol, gambling, and defense can be polarizing, and they're generally topics to avoid at dinner parties, so it should come as little surprise that investors have equally strong opinions about companies in these trades.

Proponents of socially responsible investing (SRI) will argue there are simply healthier and more ethical ways to invest your money than in sin stocks. Fortunately for these investors, there are funds like the Vanguard FTSE Social Index (VFTSX) and Domini Social Equity (DSEFX), specially designed for those who want to rid their portfolios of sin and vice.

One man's garbage...
On the other hand, SRI's intentional avoidance of an entire sector of the market could provide outsized returns for sin stock investors. In fact, Wharton professor Jeremy Siegel found that between 1957 and 2003, Philip Morris (now Altria (NYSE: MO)) was the best-performing stock on the market.

One of the reasons for Philip Morris' outperformance, Siegel argues, is that investor aversion to the company's business of tobacco-mongering kept share prices down, thus raising the return for investors who stuck by the stock. His point is that earnings growth alone matters less than earnings growth relative to market expectations in driving stock prices higher. Because investors were frequently concerned with Philip Morris's litigation liabilities and reduced tobacco use among the public, they frequently underestimated the company's actual earnings growth.

The Vice Fund (VICEX), which only invests in tobacco, alcohol, gambling, and defense stocks, employs a similar philosophy, and so far the returns are intriguing. Over the past five years, for example, the Vice Fund has returned 14% annualized, while the Vanguard FTSE Social Index and Domini Social Equity funds have posted just 5% and 6% annualized returns, respectively, over the same period.

Laugh with the sinners
Over on the Motley Fool's 115,000-member investing community, CAPS, the sin stock debate rages on. You can join the debate by clicking here, but first consider the top-rated sin stocks on CAPS:

Company

"Sin"dustry

YTD Performance

Imperial Tobacco (NYSE: ITY)

Tobacco

(30.3%)

Triumph Group (NYSE: TGI)

Aerospace/Defense

(30.6%)

Embraer-Empresa (NYSE: ERJ)

Aerospace/Defense

(33.7%)

CAE

Aerospace/Defense

0.7%

Diageo (NYSE: DEO)

Beverages-Wineries & Distillers

(9.6%)

Teledyne Technologies (NYSE: TDY)

Aerospace/Defense

20.1%

FEMSA (NYSE: FMX)

Beverages – Brewers

25.6%

*Source: Yahoo! Finance and Motley Fool CAPS, as of Aug. 8, 2008.

 

5 Comments – Post Your Own

#1) On August 12, 2008 at 4:05 PM, LordZ wrote:

PIMPIN ...

 

Report this comment
#2) On August 12, 2008 at 4:21 PM, DemonDoug (99.86) wrote:

how are embraer and triumph sin stocks?

ITY is BAD BAD BAD.  Do not invest in ITY.  They have all sorts of financial and accounting issues going on.  Their smoking business might be fine but there are a lot of mismanagement of finances going on; they had to issue stock in a secondary offering in the past 6 months to cover their butts, this is not a good sign for the company.  Stay the hell away from imperial tobacco.

Now DEO, if you can get that on a downturn, that's a good one to have.  Got a lil Captain in ya?

Report this comment
#3) On August 12, 2008 at 4:31 PM, TMFBigVice (95.84) wrote:

DemonDoug,

Any company involved in the defense industry, as Embraer and Triumph are, fell into this screen. 

Completely agree with you on DEO. If only I had jumped on the price below $70...

Todd 

Report this comment
#4) On August 15, 2008 at 4:34 AM, StockSpreadsheet (65.31) wrote:

OK, I don't get it.  You list FMX as a top-rate sin stock, included it in your article, but did not add it to the TMFBigVice portfolio?  What is that about?  I even liked the stock, wrote up my own pitch for it on the Stinky Feet discussion board, (http://boards.fool.com/Message.asp?mid=26902943), linked to your article, and yet you didn't add it to the portfolio so that I could respond to your pitch.  What gives?  Just curious.  Hope you like my pitch. 

Craig

Report this comment
#5) On August 15, 2008 at 4:36 AM, StockSpreadsheet (65.31) wrote:

By the way, I clicked on your link to see what had been said in the debate and I got an "Invalid URL" error message.  Just thought you might like to know.

Craig 

Report this comment

Featured Broker Partners