5 'Sinful' Stocks to Buy for 2012 Gains
As investor anxiety ramps up in April, market participants are getting desperate about their trades, turning to treasuries, cash, and -- dare I say it -- sin stocks .
But don't let the name fool you; sin stock companies aren't exactly in the business of burning down old folks' homes. Instead, alcohol, tobacco, gambling and weapons firms are all classical examples of sin stocks.
So what makes sin stocks so attractive when anxiety ratchets higher?
For starters, sin stocks tend to be businesses that provide a stress outlet for consumers. As a result, recession resistant revenues and sticky customer bases are the norm. The devil's in the details with sin stocks; because these firms generally sport wide economic moats and deeper margins than traditional consumer plays, sin stocks benefit from an extra qualitative boost that you can't find in any other group right now. In 2012 the data already prove that to be the case.
In the past three months, the S&P 500 has gained around 5% -- but over that same period, the aptly-named Vice Fund (VICEX), a sin stock-focused mutual fund, has actually gained nearly twice as much over that same period. That's an auspicious sign for investors looking for relative strength right now.
Not all of the names in this group are created equal right now. Here's a look at five sin stocks that could outperform in this market .
First up is tobacco giant Philip Morris International (PM) , the second-largest tobacco company in the world, with around 16% of the overseas tobacco market. "Overseas" is the operative word in that sentence -- PM is the result of Altria's(MO) splitting off its international business in 2008. As such, all of its operations are based outside the U.S. PM owns a handful of popular tobacco brands, including flagship Marlboro, and L&M, Parliament and Chesterfield.
Staying out of the U.S. tobacco market carries a mix of advantages and disadvantages. On the plus side, PM is spared from the drag of potential litigation here at home, and it gets to operate in markets that aren't as saturated as the U.S. But the minus column includes having to deal with the impact of a strong U.S. dollar over the last few years. Because PM earns its sales in foreign currencies and reports earnings in dollars, a strong dollar effectively reduces the firm's profitability.
But ultimately those factors are secondary to PM's growth story. Exposure to attractive markets like China and India has fuelled impressive revenue growth over the last several years. Key partnerships (like the one with China National Tobacco in the People's Republic) should help Philip Morris take share from smaller regional brands.