Your retirement portfolio has to be taking a hit. Fortunately, there is a broad class of stocks that has been outperforming the market this year—and it tends to do so regardless of how the stock market is doing, which makes these stocks the perfect option when stock market investing remains volatile and the economic outlook remains weak. Come to think of it, they’re also great stocks for when the markets are doing well.
So-called sin stocks may not be for everybody, but if you like to make money, they might be a good idea.
U.S. Stocks in the Red
Stock market indexes are only as strong as the stocks that compose them. After a raft of mixed fourth-quarter and year-end results, it’s not surprising to see the markets are still doing poorly.
The S&P 500 may be at a two-month high, but that’s all relative. It’s still down two percent since the beginning of the year and down around six percent from its 52-week high.
The Dow Jones Industrial Average is also down two percent so far in 2016 and off its 52-week high by more than seven percent.
The tech-heavy NASDAQ is in the red -3.2% in 2016 and -9.5% from its 52-week high.
It’s even worse for the Russell 2000 Small Cap Index, which is down -4.3% year-to-date and -16.5% from its 52-week high.
Troubled Economy Still in Trouble
How can that be though? If you listen to Capitol Hill, the U.S. economy is doing really quite well. Construction spending is up, unemployment is below five percent, and (apparently) wages are on the move. And stocks are on the move…
So, mission accomplished!
Not really. The same problems that have been causing volatility with stocks are still present. For starters, nothing has changed when it comes to weak growth from China (the world’s second-biggest economy) Japan (the world’s third-biggest economy), or the eurozone (the world’s biggest economic region).
Those countries that have implemented negative interest rates haven’t all of a sudden changed course because of U.S. unemployment data. Britain is still considering an exit from the eurozone, the U.S. economy and global economies have been downgraded by the International Monetary Fund (IMF) and (OECD), and the energy sector is against the ropes.
To top it off, central banks around the world are out of ideas when it comes to kick-starting the economy.
Amidst an abysmal economic global outlook and strong U.S. dollar, it would be a mistake for the Federal Reserve to hike its rates any further—at least for right now. If it does, it will send the markets even further downward.
Sin Stocks to the Rescue
Love them or hate them, sin stocks make investors money, which is why most people are in the stock market to begin with. “Sin” stocks—or maybe you prefer the term “vice” better—are generally made up of publicly traded companies that deal with alcohol, arms, sex, tobacco, and gambling.
And whether the economy is doing well or not, chances are good that consumers will buy cigarettes, drink alcohol, go to strip clubs, and buy guns. And chances are also really good that Washington is going to maintain its military spending.
On top of that, many sin stocks, especially cigarette makers, provide consistent annual dividend growth. That makes sin stocks pretty attractive in a near-zero interest rate environment.
Sin stocks can afford to pay out solid dividends because their underlying products don’t cost very much to make. At the same time, they all have high barriers to entry, so competition isn’t exactly fierce.
As a result, sin stocks have everything I look for when it comes to stock market investing. They have a resiliency that other stocks lack.
The following is a list of sin stocks that have (mostly) been performing well in spite of the U.S. economy:
- Tobacco: Cigarette manufactures have, for the most part, been doing really well for years now. In 2015, a year that saw the S&P 500 stumble, cigarette makers threw up double-digit growth. Some of the best tobacco stocks to watch include Altria Group Inc (NYSE:MO), Philip Morris International Inc. (NYSE:PM), and Reynolds American, Inc. (NYSE:RAI).
- Arms: Aerospace and defense stocks have also been doing quite well—or at least some of them have. These include Sturm, Ruger & Company (NYSE:RGR), Smith and Wesson Holding Corp (NASDAQ:SWHC), and Lockheed Martin Corporation (NYSE:LMT). No wonder experts love these names when it comes to stock market investing.
- Alcohol: There are a surprisingly small number of players when it comes to alcohol. And they have not been as resilient as one might expect. Still, Molson Coors Brewing Company (NYSE:TAP) and Anheuser Busch Inbev SA (ADR) (NYSE:BUD) remain solid. Boston Beer Co Inc’s (NYSE:SAM) share price has been hammered over the last year, but it has recently rebounded.
- Sex: Sex sells, but there aren’t a lot of companies that operate in the shadows. In fact, the only company of note that operates under this umbrella and that is not a thinly traded penny stock is RCI Hospitality Holdings, Inc. (NASDAQ:RICK). The purveyor of “upscale” adult nightclubs, RCI’s share price hasn’t exactly been stellar of late; however, like the broader markets, it has been on the rebound over the last month.