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- The “sin stocks” label traditionally refers to gambling, alcohol, tobacco, and weapons companies.
- Sin stocks are considered defensive stocks, meaning they tend to perform well even during an economic downturn.
- Though relatively stable, sin stocks carry some special risks, such as being vulnerable to changes in regulations or taxes.
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Sin stocks refer to shares of public companies engaged in a business or industry that’s considered unethical, immoral, or unsavory. Traditionally, the term’s been applied to the weapons, alcohol, gambling, or tobacco sectors. But, with the growth of socially responsible investing and ethical investing, sin stocks now often encompass other companies and industries people find objectionable in some way.
Some investors shun sin stocks and try to own only investments they consider virtuous or ethical. Other investors favor sin stocks because they tend to perform well in both bull and bear stock markets, and no matter what phase the economy is in.
Let’s fall more deeply into sin stocks.
What is a sin stock?
No single standard industry definition exists for sin stocks. But most of the categories could be said to tie into any of the seven deadly sins laid out centuries ago by Pope Gregory I:
- Pride
- Greed
- Lust
- Envy
- Gluttony
- Wrath
- Sloth
It’s easy enough to plug most of the sin stock categories into this ancient list: Gluttony could refer to alcohol and tobacco stocks, wrath could refer to weapons stocks, and greed could refer to gambling stocks. Adult entertainment companies can also fall under the umbrella of sin stocks, and they fit nicely into the lust category.
Is sin in the eye of the beholder?
Other stocks and sectors can be considered sinful too — depending on your religion, your politics, and your personal moral and ethical values.
For example, Islamic investors, following their faith's Shariah law, might shun conventional financial institutions because they charge interest. Shariah principles also prohibit investments in alcohol, tobacco, pork, gambling, media, and pornography and disallow short selling, speculation, and derivatives.
Environmentalists might classify oil and coal stocks as sin stocks, considering the companies behind them to be "polluters." Vegans might consider shares of any company that raises animals, sells animal products, or tests on animals to be a sin stock. Some analysts even make a solid argument for Netflix as a sin stock: to binge-watch a show is to indulge in sloth.
And if alcohol is sinful, maybe marijuana is, too, if it's being used for recreational and not medicinal purposes. The stock of a company that produces opiates could be considered a sin stock because of all the people who have died or become addicted — though of course, these drugs have enormous benefits too.
Even the generally agreed-upon categories can be open to debate. What one person calls a weapons company (unethical) another person might deem a defense company (ethical). Such is the double-edged sword of trying to define what makes a stock sinful.
Sin stock categories and companies
A variety of corporations could be called sin players. The categories include the traditional Big Four of the sin stock sector, along with some newer but commonly cited fields.
- Alcohol: Anheuser-Busch InBev (BUD), Molson Coors Brewing Company (MCBC), Boston Beer Company (SAM), Constellation Brands (STZ), Diageo (DGEAF), Brown-Forman (BF)
- Defense/Weapons: Boeing (BA), Northrup Gruman (NOC), Aerojet Rocketdyne (AJRD), Raytheon (RTX), Lockheed Martin (LMT), American Outdoor Brands (AOBC), Olin (OLN), Vista Outdoor (VSTO), Sturm, Ruger (RGR)
- Tobacco: Altria (MO), British American Tobacco (BTAFF), Philip Morris (PM)
- Gambling/Adult Entertainment: Las Vegas Sands (LVS), MGM Resorts (MGM), Wynn Resorts (WYNN), Penn National Gaming (PENN), Caesars Entertainment (CZR), Boyd Gaming (BYD), Scientific Games (SGMS), DraftKings (DKNG), RCI Hospitality Holdings (RICK)
- Marijuana/Cannabis: Cronos (CRON), Canopy Growth (CGC), Aurora Cannabis (ACB), Aphria (APHA), Tilray (TLRY), GrowGeneration (GRWG)
- Corrections/Prisons: CoreCivic (CXW), The GEO Group (GEO)
- Payday Lenders: World Acceptance Corp. (WRLD), Enova International (ENVA)
- Energy: Energy Transfer LP (ETP), ExxonMobil (XOM), Kinder Morgan (KMI)
- Meat: Hormel Foods (HRL), Sanderson Farms (SAFM), Tyson Foods (TSN)
- Snacks/Junk Food: Coca-Cola (KO), Mondelez International (MDLZ), Hershey (HSY), PepsiCo (PEP), McDonald's (MCD)
What makes sin stocks enticing?
You don't invest in sin stocks just for the thrill of being naughty. Owning them can be an attractive financial strategy.
They're steady performers
Sin stocks are considered "defensive" stocks, meaning they tend to perform well even during an economic downturn or recession. People who regularly smoke, drink, or gamble don't stop doing these things when times are bad, whether because they're physically addicted or because they enjoy these activities as a way to escape and unwind, however un healthfully.
And of course, they might indulge even more when times are good.
They're cash cows
As a result, sin stocks are known for their stable earnings and income streams. Many companies in sin industries are well-established, have sound financials, and have consistently paid dividends for years.
They've got little competition
The goods and services that sinful companies produce tend to be highly subject to law. Potential competitors may be loath to enter such enterprises, creating more room for the existing players.
Even sin stocks' negative connotations can work to their advantage. Certain institutional investors — especially those handling funds for religious or academic groups — often shy away from notorious or controversial businesses. That can lead to a particular sin stock being undervalued and a good bargain.
What are the downsides of sin stocks?
Even if you have no moral or ethical qualms about investing in sin stocks, you should consider their potential financial drawbacks before adding them to your portfolio.
There's high regulatory risk
All companies' fortunes can be contingent on laws, but regulatory risk is a particular concern with sin stocks.
Marijuana might become legal at the federal level, but what happens if, instead, U.S. states reverse the legality of medical or recreational marijuana? Defense spending and gun control regulations can change depending on who rules a country, international relations, and terrorist activity.
Taxes can be a problem
All companies have to deal with taxation, but sin stocks often have a fiscal target on their backs. Regulators and voters could decide to increase taxes on the "sinful" items these companies produce; they're often the go-to source when states need money. Higher taxes could reduce demand, dampen profits, and push stock prices down.
Consumer habits can change
You'll also want to consider the effect of changing consumer tastes, like declining alcohol and tobacco consumption. Black swan events can force habits to change, such as a pandemic shutting down casinos and the sporting events people like to bet on.
Finally, devoting too much of your portfolio to a single industry or company is always risky, no matter whether that company produces organic vegetables or nuclear warheads.
How to invest in sin stocks
The unique consideration for sin stocks is whether you oppose the product or service a company manufactures or purveyors. Otherwise, whether you should invest in sin stocks boils down to the same questions you would ask yourself with any investment:
- What is the unique benefit of putting my money in this investment versus a different investment?
- Is the potential reward high enough to choose this investment over the alternatives?
- How does this investment fit into my portfolio and my overall investment strategy?
- How much money do I stand to lose? Can I afford that loss?
Of course, as with any investment, you'll have to do the research on any possible sin stock you're considering to make sure the conventional wisdom about it holds true.
The financial takeaway
In a sense, the decision to invest in stocks question touches on the general issue of socially responsible and ethical investing — and whether you feel that your principles should influence your principal.
Some investors' attitude toward sin stocks is that it's up to individuals to decide whether they want to smoke, drink, or gamble, despite the risks. Other investors think that the companies producing these products are at least partly to blame for individuals' consumption, especially when that consumption becomes addictive and products are engineered to be addictive.
It's up to you whether to base your investment decisions purely on financial considerations or whether to let the ethical questions inform your choices.