By Thomas Kostigen
The list of vice, or “sin” stocks continues to grow, and many have thrived throughout the pandemic.
Vice stocks are those that are often associated with social ills—gun companies, defense companies, healthcare companies, fast food companies, tobacco companies, gambling companies, alcohol companies, sex companies, CBD companies, and —for some—-oil and gas companies, among others.
The amount of alcohol people are consuming has increased since the pandemic. There is more online gambling. Tobacco sales are even up. The Vice Fund, a mutual fund that holds a broad basket of traditional labeled sin stocks, has popped since the start of the pandemic, rising from just over $19 per share to nearly $30.
Many will agree that 2020 was a sinful year, but what about 2021? On a go-forward basis vice stocks look pretty good, too. Why? Because many analysts see the foreseeable future as mirroring the Roaring Twenties, which also came after a major pandemic. The 1918 influenza virus pandemic lasted until April 1920. It infected 500 million people, or one-third of the world’s population at the time. The 1920s was a decade of huge economic growth and prosperity. The Guardian newspaper recently surveyed epidemiologists who say once this pandemic ends, there will be a period in which people seek extensive social interaction— a second “roaring 20s” just as after the 1918 flu pandemic.
Social interaction, you can bet, will mean dining out more, consuming more alcohol, going to casinos, and likely smoking tobacco and marijuana. Gun sales, too, will likely rise on fears that the right to bear arms could be taken away. Conversely, oil and gas companies will likely be under fire from the climate friendly Biden administration.
Nearly half of all the Vice Fund’s holdings are in consumer defensive stocks, which the mutual fund rating firm Morningstar defines as “companies engaged in the manufacturing of food, beverages, household and personal products, packaging, or tobacco. Also included are companies that provide services such as education & training services.” The fund’s next biggest holding sector is with consumer cyclicals—industries such as automotive, housing, entertainment, and retail.
In sum, vice stocks are part of society’s fabric, no matter what label we put on them or what we think of them: they are here to stay. A good financial advisor can pick through the lot and decide which, if any sin stocks, may be good for your portfolio (even if they are not good for the world, or align with your set of values.)
To be sure, who or what defines a “sin” or “vice” stock is subjective. Take, for example, marijuana, or CBD, stocks. Some of these appear on sustainable company lists and are held by environmental, social, and governance (ESG) mutual fund managers while at the same time these same stocks appear on sin stock lists.
Yahoo Finance recently published a list of the top 10 sin stocks to buy now and made the disclaimer that, “Sin stocks represent a wide-ranging basket of companies whose operations are broadly considered to be somewhere on the spectrum between morally dubious at best to downright unethical at worst. A common thread that binds these companies is that they often exploit human weakness and vulnerabilities in the form of harmful addictive activities like cigarette smoking and gambling.”
It also added, “definitions like that could easily be applied to other companies that often avoid being labelled as sin stocks, such as food companies which make their sugar and chemical-laden products as addictive as possible, contributing to the obesity epidemic, or to social media companies, which exploit the same kind of psychological triggers that make gambling so addictive to keep users glued to their platforms in the pursuit of more likes and to the detriment of their mental health.”
Whichever side of the ledger you decide to place certain “sin” stocks, 2021 is probably going to be a good year for them.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.