The idea of investing in “vice stocks,” which are involved in activities considered immoral, is often off-putting. But, products or services in this space are relatively inelastic, and business is recession-proof. The very nature of their business ensures a stable stream of consumers, irrespective of market conditions, which eventually leads to higher margins and solid profits.
And we cannot ignore the current stock market turbulence and specter of slower economic growth, which are already unnerving investors. U.S.-China trade tensions are currently triggering global growth fears and compelling investors to stay away from riskier assets like equities.
The International Monetary Fund is also raising red flags. The international agency projected a slowdown in global growth for this year, thanks to macroeconomic stress in Argentina and Turkey and disruptions in Germany’s auto sector, to name a few. By the way, from Fed to ECB to Bank of Japan and Bank of England, all have shifted to an accommodative stance due to global growth concerns, which makes investing in sin stocks more desirable.
But before we zero in on stocks from this tempting space, let’s take a look at what’s in store for these companies.
Marijuana Fever Here to Stay
The cannabis industry is likely to create a lot of noise this year. After all, Canada has become the first major economy to legalize recreational pot, with quite a number of U.S. states giving green signal to cannabis in some capacity last year.
The U.S. Food and Drug Administration did approve its very first cannabis-derived drug, and thus marijuana became a legitimate business model last year. This year, in fact, the global consumer marijuana outlays are estimated to climb 38% to $16.9 billion, up from a projected $12.2 billion last year, $9.5 billion in 2017, and $6.9 billion in 2016, per Arcview Market Research and BDS Analytics. Additionally, compounded global annual sales growth of cannabis from 2017 to 2022 is projected at $31.3 billion.
Investment bank Cowen & Co further added that the legal weed market is expected to reach a worth of as much as $75 billion by 2030. This indicates that there are plenty of opportunities for investors to make money from both direct and subsidiary players, who won’t touch the plant but will surely benefit from this fast-growing industry.
Booze Consumption Picks Up
Last year, no doubt, was a horrible year for alcohol stocks. Both sales and profit margins were under severe pressure, pushing share prices down. Booze consumption, however, is increasing at a slow but steady pace this year, according to data researcher Nielsen. And the rise in consumption is certainly a positive for alcohol stocks.
Innovation and more shake-ups in recent times like Anheuser-Busch InBev SA/NV’s BUD takeover of SABMiller will further help alcohol stocks spiral up this year.
Things Looking Up for Gaming Companies
Robust initiatives helped multi-jurisdictional gaming companies progress by leaps and bounds. But, let’s admit that things are looking up for such companies mostly due to consumer confidence.
Americans are now feeling more optimistic about their present and future conditions. According to the Conference Board, the consumer confidence index climbed to 129.2 in April from 124.2 in March. The key economic indicator that measures attitudes on economic prospects exceeded analysts’ expectations of a 126.9 reading and has rebounded in April after a drop in March.
The future expectations index also moved up to 103 from 98.3. And people’s confidence in present situations improved from 163 in March to 168.3 in April. Both indexes are now close to their highest levels in a decade.
5 Sinfully Good Stocks to Buy
As mentioned above, sinful stocks are poised to do much better this year. Such stocks not only celebrate good times but are also useful during recessionary periods. We have selected five such stocks from the pot, alcohol and gaming industries. These stocks possess a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GW Pharmaceuticals plc GWPH focuses on discovering, developing, and commercializing cannabinoid prescription medicines using botanical extracts derived from the Cannabis plant. The cannabinoid drug maker is expected to see an uptick in sales this year, especially, after its lead drug Epidiolex became the first cannabis-derived drug to gain approval from the Food and Drug Administration. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased more than 100% over the past 60 days. The stock, which is part of the Medical - Products industry, is expected to see earnings growth of 26.1% in the next quarter.
Scotts Miracle-Gro Company SMG is known for offering products for pest control and growing plants in sand, gravel, or liquid. In this process, Scotts Miracle-Gro has become a major supplier to the booming marijuana industry that is dependent on its products to boost cultivation output. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has risen 1.4% over the past 60 days. The stock’s expected earnings growth rate for the current year is 14.6%, higher than the Fertilizers industry’s projected rally of 13.3%.
Ambev S.A. ABEV produces, distributes, and sells beer and draft beer in the Americas. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 4.7% over the past 60 days. The stock’s expected earnings growth rate for the current year is 15.8%, more than the Beverages - Alcohol industry’s estimated rally of 7.3%.
International Game Technology IGT operates and provides technology products and services across lotteries, electronic gaming machines, sports betting, and interactive gaming markets. The company currently has a Zacks Rank #1. The company’s expected earnings growth rate for the current quarter is 53.3% against the Gaming industry’s projected decline of 12.9%. Similarly, the company’s expected earnings growth for the current year is 24.5%, higher than the industry’s projected rise of 17.2%.
Ubisoft Entertainment SA UBSFY engages in the production, publishing, and distribution of video games for consoles, PC, smartphones, and tablets. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings has increased 1.3% over the past 60 days. The stock’s expected earnings growth rate for the current year is 80.9%, way more than the Gaming industry’s projected rally of 17.2%.
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International Game Technology (IGT) : Free Stock Analysis Report
UbiSoft Entertainment Inc. (UBSFY) : Free Stock Analysis Report
Anheuser-Busch InBev SA/NV (BUD) : Free Stock Analysis Report
Ambev S.A. (ABEV) : Free Stock Analysis Report
GW Pharmaceuticals PLC (GWPH) : Free Stock Analysis Report
The Scotts Miracle-Gro Company (SMG) : Free Stock Analysis Report
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