A spike in government bond yields has compelled a reassessment of risky assets like stocks. Try placing your bets on stocks that not only celebrate good times, but also lift spirits during recessionary periods.
However, it’s advisable to stay away from marijuana stocks as the very nature of their business is questionable. It makes a lot more sense to invest in tried-and-true “sin stocks.” These stocks are a defensive play, with no speculation involved.
Marijuana Rush Mirrors 1990s Dot-Com Bubble
The euphoria over marijuana investments has grown beyond reasonable fundamentals, reminiscent of the ill-fated Internet bubble of 1997. After all, most of the companies involved in the marijuana business have limited revenues. Tilray, Inc. (TLRY - Free Report) , for example, boasts a market cap higher than Macy’s, Inc. M. But, Tilray recorded less than $20 million in revenues during the first half of the year, way less than Macy’s’ $25 billion.
Marijuana trade recently picked up momentum on headlines that PepsiCo, Inc. (PEP - Free Report) was looking at the marijuana space. But headlines can be misleading. The reality is that Pepsi has refused to invest in the marijuana space, causing stocks to tank and momentum investors to lose a lot of money. To hedge risks, it’s always prudent to invest in the old-school “sin stocks,” provided you don’t abhor the idea of putting money into activities considered unethical.
Here’s Why These Stocks Are Sinfully Good
Sin stocks are mostly in the business of making weapons, operating casinos, growing tobacco and providing sugary treats. Their products or services are relatively inelastic and business recession-proof. The very nature of their business ensures a steady stream of consumers, irrespective of market conditions, which eventually lead to higher margins and solid profits. At the same time, these companies produce large amounts of cash with culturally established market positions.
By the way, many choose to steer clear of such companies, making them more prone to undervaluation. This does present a lot of opportunity for others to buy them at a bargain price. But, all vice companies may not be cheaper than the market. However, they are surely less expensive than they should be, given their brand value and growth opportunity. On that positive note, we have highlighted five vice-related stocks that should make good investments.
The U.S. army recently chose Raytheon Company (RTN - Free Report) to produce the next-generation air and missile defense radar, which has set the stage for significantly better operating performance. Raytheon, by the way, has a wide array of defense programs in its portfolio. This reduces the risks involved to delays and cancellations. Needless to say, tensions in Syria should drive additional military demand in the near term, something that bodes well for the world’s largest manufacturer of guided missiles.
Raytheon has also increased its payout by more than 40% in the past five years. And we all know that stocks that pay out a healthy yield are less susceptible to market gyrations. Their large customer base, sustainable business model, long track of profitability and strong liquidity allow them to offer sizable yields on a regular basis, regardless of market direction.
The company currently has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for its current year earnings rose 0.2% in the last 60 days. The company’s expected earnings growth rate for the current year is 30.3% compared with the Aerospace - Defense Equipment industry’s estimated rise of 19.1%.
Recent robust strategic initiatives have currently helped Boyd Gaming Corporation (BYD - Free Report) progress leaps and bounds. But, let’s admit that things are looking up for this multi-jurisdictional gaming company, thanks to confident consumers.
U.S. consumer confidence soared to its highest in 18 years in September, per the Conference Board, a business research organization. The consumer confidence index had climbed to 138.4 last month from an upwardly revised 134.7 in August.
Consumers’ optimism was largely driven by robust job growth. The current unemployment rate is now at a nearly two-decade low, while the U.S. economy added jobs for 95 successive months in August, the longest stretch on record.
Coming back to Boyd Gaming, the company currently flaunts a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its current year earnings rose 2.8% in the last 60 days. The company’s expected earnings growth rate for the current year is 41.8% compared with the Gaming industry’s estimated rise of 13.6%.
Despite a sustained assault on smoking in the United States, long-term investors in Altria Group, Inc. (MO - Free Report) have done extremely well. And that’s because tobacco is largely recession-proof and sales are still strong throughout the world especially in the emerging markets. The company has successfully outperformed the broader Tobacco industry in the last three months (+6% vs -1.7%).
Altria currently possesses a Zacks Rank #2. The company’s expected earnings growth rate for the current year is 18.3% compared with the industry’s estimated growth of 7.3%.
Simply Good Foods
The Simply Good Foods Company (SMPL - Free Report) develops, markets, and sells ready-to-drink shakes, snacks, and confectionery products in North America and internationally. Even though such products are an area of concern for health advocates, seldom do we can restrain from indulging in such treats. That seems to be the story told by the company’s earnings growth. The company has easily outperformed the broader Food - Confectionery industry in the last three months (+22.2% vs +4.4%).
It currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 5.7% in the last 90 days. The company’s expected earnings growth rate for the next quarter is 35.7% compared with the industry’s estimated rise of 20.3%.
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