The U.S. economy has been facing recessionary threats of late, thanks to global growth tensions. Bridgewater founder Ray Dalio sees a 40% probability of a U.S. recession before the 2020 election. “The yield on the 10-year Treasury note briefly broke below the 2-year rate” on Aug 14.
Though the worldwide rollout of stimulus measures helped maintain market momentum, slowdown or recession fears have still been haunting investors. While non-cyclical sectors perform well during recessionary periods, sin stocks surprisingly tend do well in such times.
What is a Sin Stock?
Per Investopedia, “a sin stock refers to a publicly traded company that is either involved in or associated with an activity that is considered to be unethical or immoral. Sin stocks are generally found in sectors that deal directly with activities are frowned upon because they are perceived as making money from exploiting human weaknesses and frailties. Sin stock sectors usually include alcohol, tobacco, gambling, sex-related industries and weapons manufacturers.”
However, along with other analysts, we also believe that not all sin industries do well in recessionary period as gambling is considered an ultra-luxury and is not likely to outperform in such times. However, areas like alcohol and tobacco have reasons to see more business. Weapon manufacturers are also likely to stay afloat as geopolitical crisis is not showing signs of abating.
How to Profit?
Against this backdrop, we highlight a few sin stocks and ETF that are likely to perform well in the coming days.
Stocks in Focus
Anheuser-Busch InBev SA/NV (BUD - Free Report)
Anheuser Busch Inbev NV (AB InBev) is a Belgium-based company engaged in the brewing industry. The company owns a portfolio of more than 200 beer brands. The stock has a Zacks Rank #2 (Buy).
GW Pharmaceuticals Plc (GWPH - Free Report)
GW Pharmaceuticals is a biopharmaceutical company focused on discovering, developing and commercializing therapeutics from its proprietary cannabinoid product platform in a broad range of disease areas. Investors should note that cannabis is still federally illegal. It does not have the legal status in many countries. However, its acceptance is growing in the field of medicine and consumerism. The stock has a Zacks Rank #1 (Strong Buy). It belongs to a top-ranked Zacks industry (top 21%).
Advisorshares Vice ETF (ACT - Free Report)
This ETF is active and does not track a benchmark. The fund provides concentrated exposure to select companies associated with alcohol, cannabis and tobacco. Cannabis-related stocks take about 28.5% of the fund, followed by 22.5% weight in alcohol, 16.5% in tobacco with cannabis exposure and 16% in restaurant and entertainment stocks. ACT has gained 13.2% this year compared with 15.2% gain of the S&P 500 and 17.8% rise of SPDR Gold Shares (GLD).
ETFMG Alternative Harvest ETF (MJ - Free Report) )
Marijuana can also be considered a sin or vice ETF. The underlying Prime Alternative Harvest Index enables investors to take advantage of both event-driven news and long-term trends in the cannabis industry as well as industries likely to be influenced by the medicinal and recreational cannabis legalization initiatives taking place in many locations globally. The fund is up 5.3% this year (read: Cannabis Expert Tim Seymour's Favorite Pot Stocks and ETF).
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