Sin Stocks - when sin pays off [Guide]
There are over 600 companies listed on the stock exchanges (also including illiquid companies). Thanks to the huge selection, investors can invest in various sectors of the economy. From solar panel manufacturers to companies operating in "immoral" or "unethical" industries. The latter category of companies has a patch sin stocks. What are "Sinful companies" and is it worth being interested in them?
Investing in companies that meet ESG standards, that is socially and environmentally responsible enterprises. A phenomenon appears very often to meet these requirements "Greenwashing", that is, practices that are supposed to present ordinary products and services as "ecological"or "Climate neutral". The following article will present the companies "On the other side of the barricade".
These are often companies that sell products that are often considered socially harmful. However, these are also products that find their dedicated buyers. Such companies include, among others, manufacturers of cigarettes, alcohol and casino operators. Due to the fact that there is no single definition of "sin stock", the set of companies that meet the conditions depends on the preferences of investors. Some of the companies of this type also include the manufacturers of weapons or enterprises related to the video game industry.
Disadvantages of investing in sin stocks
Investing in unpopular companies causes a number of risks that the investor must be aware of. One of the most obvious is political risk. This is especially true for products and services that may have negative social effects.
An example can be cigarettes, which are systematically carried out as a result of the activities of health-promoting organizations and governments "Excluded" from social life. It is enough to mention the ban on smoking at bus stops or restricting places "for smokers" in restaurants. In many countries, regulations also apply to packaging that is supposed to be unattractive and present the consequences of smoking.
One of the next drawbacks is the ability to restrict advertising. They are famous in Poland as an example "Gambling law", which significantly limited the operation of, among others, enterprises related to the bookmaking industry.
Another disadvantage of investing in such companies is "ease" establishing new taxes on these industries. The main argument is action "Pro-health". Excise duty on alcohol and cigarettes is another source of tax revenues. However, too high excise tax makes the operations of companies more difficult, as smuggling increases, which also negatively affects the company's revenues.
You should also remember that the rise of fashion on "Eco" it also touched the financial industry. As a result, fewer and fewer financial institutions are investing in companies whose products are harmful to health. Such companies may also have greater problems financing their activities. Another problem is that the lack of demand for this type of shares from institutions may adversely affect the valuation of such companies.
Advantages of investing in sin stocks
Investing in the operation of companies from the industry "Immoral" i "Unhealthy" it also has its pluses. One of them is smaller "flexibility" demand to change prices than the case "Ordinary" products and services. There are buyers of cigarettes or alcohol "Felt less" on the rise in the prices of these goods. In such a situation, it is easier for such companies to pass on some of the increasing costs to their customers. For this reason, many companies operating in these industries can boast very high operating profitability.
Another benefit of this type of companies is that they are more resistant during a recession than in the case of companies offering products and services that are included in discretionary expenses (trips, cars, etc.).
Also, regulatory actions that hinder operation in these industries are often "unexpected help" for large companies. Restrictions in cigarette advertisements mean that the beneficiaries of such a solution are large enterprises with well-known brands that have "hit" the awareness of consumers (eg Marlboro, Camel, L&M, Winston).
How to invest in sin stock?
Companies operating in "sinful industries" are listed on many stock exchanges around the world. Both in the most liquid trading places (United States, Japan, Great Britain) and in markets more peripheral to world capital (Denmark, Meksyk). You can either invest in such companies through ETFs that give you exposure to these sectors of the economy, or you can directly select such companies for your portfolio.
ETFs
One of the easiest ways to invest in this type of business are ETFs listed on the largest stock exchanges in the world. One can give as an example AdvisorShares Vice ETF (VICE). This ETF was established in 2017 and invests in companies operating in “unhealthy” sectors. As a result, the fund invests in companies operating in the alcohol, tobacco and gambling industries. On March 26, 2021, the ETF raised nearly $ 13 million in assets under management (AUM). The ETF consists of 38 companies. The largest shares are held by Boston Beer Company (6,67%) and Turning Point Brands (tobacco accessories, nicotine-based products, etc.).
Another idea is to invest in an ETF that only has exposure to one of the sectors with sin stocks. An example would be VanEck Vectors Gaming ETFwhich invests only in companies related to the gambling industry. The ETF was founded in 2008 and has raised over $ 150 million to date. The annual management cost is 0,66% (TER). The fund consists of 42 companies. The companies with the largest shares include Flutterr Entertainment (including sports betting) and Evolution Gaming (turnkey solutions for online casino operators).
Projects
When investing in individual stocks, the investor must be aware of the greater risk (less diversification). On the other hand, the advantage of such a solution is a greater potential profit in the case of selecting the right company (diversification "dilutes" the profits). Selected companies included in the list are presented below "Sin stocks".
Altria
This is the "heir" of Philips Morris. The company owns, among others, cigarette brands such as Marlboro or Black & Mild cigars. In addition, the company also has an offer of JUUL e-cigarettes and an offer of "smokeless" solutions such as the IQOS brand. The company is aware of the challenges facing the tobacco industry. As a result, he has been investing in companies with other activities for many years. Altria owns a 10% stake in one of the largest companies in the alcohol industry (AB Inbev). The company also has a majority stake in Cronos Group (marijuana industry) and STE Michelle (wine producer). The company's capitalization is $ 97,58 billion.
Altria | 2017 | 2018 | 2019 | 2020 |
revenues | $ 19 million | $ 19 million | $ 19 million | $ 20 million |
Operational profit | $ 9 million | $ 9 million | $ 10 million | $ 10 million |
Operating margin | 49,19% | 48,39% | 52,97% | 52,15% |
Net profit | $ 10 million | $ 6 million | $ -1 300 million | $ 4 ml |
British American Tobacco (BATS)
It is one component of the FTSE 100 index. The company's shares are also traded on the Johannesburg Stock Exchange and the New York Stock Exchange (as ADSs). The British company owns brands such as Camel, Lucky Strike and Pall Mall. The company also offers e-cigarettes (under the Vuse brand). Just like Altria, the company can boast of an offer of tobacco warmers (Glo). The company's capitalization is $ 97,58 billion.
BATS (million GBP) | 2017 | 2018 | 2019 | 2020 |
revenues | 20 292 | 24 492 | 25 887 | 25 776 |
Operational profit | 6 470 | 9 437 | 9 230 | 10 176 |
Operating margin | 31,88% | 38,53% | 35,65% | 39,48% |
Net profit | 37 553 | 6 032 | 5 704 | 6 400 |
Diageo
The company is listed on the London Stock Exchange and is also one of the components FTSE 100 index. Diageo it is one of the largest alcohol producers in the world with a wide portfolio of well-known brands. The company sells, among others whiskey, rum, gin, tequila or beer. Diageo owns such "brands" as Johnnie Walker, Guinness, Captain Morgan and Smirnoff. Diageo also owns a minority stake in Moët & Chandon, which is the producer of Dom Pérignon and Moët champagnes.
Diageo | 2017FY | 2018FY | 2019FY | 2020FY |
revenues | £ 12 million | £ 12 million | £ 12 million | £ 11 million |
Operational profit | £ 3 million | £ 3 million | £ 4 million | £ 2 million |
Operating margin | 29,54% | 30,3% | 31,4% | 18,2% |
Net profit | £ 2 million | £ 3 million | £ 3 million | £ 1 million |
Brown-Forman
Brown-Forman is a component the S&P 500 index and Russell 1000. The company is one of the largest American producers of spirits and wine. The company managed to gather interesting brands under its wings, which are recognizable in many countries around the world. The company's portfolio includes brands such as Jack Daniel's, Old Forester, Finlandia vodka, Tequila Pepe Lopez and Korbel sparkling wine. The company's capitalization is approximately $ 32,3 billion.
Brown-Forman | 2017FY | 2018FY | 2019FY | 2020FY |
revenues | $ 2 million | $ 3 million | $ 3 million | $ 3 million |
Operational profit | $ 989 million | $ 1 million | $ 1 million | $ 1 million |
Operating margin | 33,03% | 31,99% | 34,42% | 32,44% |
Net profit | $ 669 million | $ 717 million | $ 835 million | 827 ml $ |
RCI Hospitality
It is an American company that operates in the "adult" entertainment segment. RCI operates 38 nightclubs and strip clubs ($ 149 million in revenues in fiscal 2019). The second segment of activity is the Bombshells restaurant chain (revenues of $ 30 million in the financial year 2019). The concept of the restaurant refers to the military theme (eg Burger Pearl Harbor or B-17 Wings). The company's capitalization is approximately $ 0,5 billion.
RCI Hospitality | 2017FY | 2018FY | 2019FY | 2020FY |
revenues | $ 144,9 million | $ 165,7 million | $ 181,1 million | $ 132,3 million |
Operational profit | $ 30,5 million | $ 36,7 million | $ 37,3 million | $ 13,3 million |
Operating margin | 21,05% | 22,15% | 20,60% | 10,05% |
Net profit | $ 8,3 million | $ 21,7 million | $ 19,2 million | -6,1ml $ |
Brokers offering CFDs and Stocks
Forex brokers are increasingly enriching their offer with equity instruments and ETFs. You can invest in companies from the Sin Stocks sector through brokers such as XTB and Saxo Bank.
For example on XTB Today, we can find over 3500 equity instruments and 400 ETFs, a Saxo Bank over 19 companies and 000 ETF funds.
Broker | |||
End | Poland | Denmark | Cyprus * |
Number of exchanges on offer | 16 exchanges | 37 exchanges | 24 exchanges |
Number of shares in the offer | approx. 3500 - shares circa 2000 - CFDs on shares |
19 - shares 8 - CFDs on shares |
approx. 3 - CFD on shares |
The amount of ETF on offer | approx. 400 - ETF approx. 170 - CFD on ETF |
3000 - ETF 675 - CFD on ETF |
approx. 100 - CFD on ETF |
Commission | 0% commission up to EUR 100 turnover / month | according to the price list | Spread depends on the instrument |
Min. Deposit | PLN 0 (recommended min. PLN 2000 or USD 500, EUR) |
0 PLN / 0 EUR / 0 USD | PLN 500 |
Platform | xStation | SaxoTrader Pro Saxo Trader Go |
Plus500 platform |
* PLUS500 CY offer
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.
Sin Stocks - Summary
Shares classified as Sin Stocks due to the sectors in which they operate, they are exposed to greater political and tax risk (especially in the tobacco, alcohol and gambling industries). For this reason, one should expect an increase in tax burdens and further “sectioning” of these companies on the advertising market. Buying stocks of a company earning on "Handicaps" human nature may be questionable from a "moral point of view." On the other hand, it can be an interesting investment idea, as companies from these sectors have more "loyal" customers (the demand is less flexible to price increases).