Worth The Profit? – The Popularity of Sin Stocks
Morality has become a common theme in the stock market recently. The idea of ESG investing, also known as “socially responsible investing”, involves the environmental, social, and governing aspects of a company which are non-financial factors. Many funds have adopted ESG investing along with individual investors, and it is only one of the ways in which investors are involving morals with their stock purchases. Morality has two sides though, and there are a lot of stocks that can be considered immoral; these are often referred to as “sin stocks” due to the unethical nature of their business.
Sin stocks tend to be in the industries of gambling, alcohol, tobacco, and weapons. What is sinful in a sense is simply the perspective of the investor as not all the companies in these industries are considered sinful. However, there are many that we commonly refer to when we utilize this term. In the gambling industry, Caesars and DraftKings could be considered sin stocks due to the unethical nature of gambling businesses, profiting off the losses of gamblers. Alcohol is dangerous to consumers if overconsumption occurs, placing brands like Constellation in the list. Tobacco business is similar in nature to alcohol, giving giant Philip Morris the sin brand. Weapons companies are often debated, considering some provide arms to the government, but brands like Smith and Wesson could be considered too. The commonality between these sin stocks is that they uniquely act as defensive stocks when a recession is occurring. This is because demand for these industries are constant whether an economic downturn is occurring or not, and other factors like a presidential election could even boost demand in the area of weapons for example. There are risks like further regulations from the government or sin taxes on things like tobacco, but it’s an interesting opportunity regardless.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.