The wages of sin may be death but there is a lot of profit to be made along the way. Sin stocks are often great investments because they tend to be recession-resistant. Alcohol sales, for instance, tend not to decline during tough times because people continue to drink regardless of economic conditions.
During the recession of 1990 to 1991, Constellation Brands (NYSE:STZ) gained 11% compared to the S&P 500 rising just 3%. Again in 2001, the alcoholic beverage stock gained 34% versus the benchmark index tumbling 13%.
Although the pandemic era was a different story because it of its unique circumstances, the exception proves the rule. Generally speaking, sin stocks thrive during recessions.
We may not be in a recession now but with the Federal Reserve stepping on the brakes to combat inflation, we may have one yet. The following three sin stocks, however, look like terrific, all-weather investments.
MGM Resorts (MGM)
Casino operator MGM Resorts (NYSE:MGM) owns important properties on the Las Vegas Strip, including MGM Grand, Mandalay Bay and Bellagio. It also owns properties in Macau, the only place in China where it is legal to gamble.
Before the pandemic, Macau was the largest gambling market in the world, but the authoritarian way Beijing responded to the coronavirus outbreak decimated the market. Four years later, it is only just climbing out of the smoking crater the government created.
Strip revenue rose 3.6% in the first quarter to over $2.2 billion while its China resorts surged 71% year over year to almost $1.1 billion. There was weakness in regional markets, such as in Atlantic City, that caused revenue to decline 7.5% but the overall health of MGM’s casinos is superb.
MGM also operates a thriving sportsbook and iGaming joint venture with Entain (OTCMKTS:GMVHY) that turned its first profit last year. It did, however, slip back to losses again in the latest quarter. Still, it remains the third largest sportsbook with about a 14% share behind DraftKings (NASDAQ:DKNG) and Flutter Entertainment’s (NYSE:FLUT) FanDuel, with each having about 35% share.
MGM Resorts stock is up only 1% over the past year. It trades at significant discounts to earnings, sales and free cash flow (FCF). It is a great sin stock to buy now whether the bull market continues or we slide into a recession.
Philip Morris International (PM)
Global tobacco giant Philip Morris International (NYSE:PM) is the world’s largest cigarette manufacturer outside of China. After the tobacco stock was spun off from Altria (NYSE:MO) in 2007, it marketed the Marlboro brand (and others) globally while its former parent focused on the U.S. market. The advent of electronic cigarettes, however, gave Philip Morris a nose under the tent to enter the domestic market.
Through a distribution partnership with Altria, Philip Morris’s leading IQOS brand of heated tobacco e-cigs were sold in the U.S. It was soon sued by British American Tobacco (NYSE:BTI) for patent violations. The International Trade Commission agreed, leading to an import ban and to its partnership with Altria to fall apart.
Philip Morris is circumventing the import ban, though, by making the IQOS device in the U.S.A. The Texas facility is under construction, with a rollout expected for 2025.
Yet traditional cigarettes still comprise the vast majority of Philip Morris’s revenue. Organic sales rose 11% year over year to $8.8 billion, while operating profits rocketed 22% higher. Although cigarette shipment volumes were essentially flat, heated tobacco units jumped 21% from the year-ago figure.
Philip Morris International stock is up 9% in 2024. It trades at 14 times earnings estimates and twice its sales, the tobacco sin stock is an investment worth making.
Innovative Industrial Properties (IIPR)
Marijuana real estate investment trust (REIT) Innovative Industrial Properties (NYSE:IIPR) is the third sin stock to consider buying. It is also one you should own regardless of whether there is a recession or not or, if you consider cannabis to be “sinful.” Because it doesn’t actually grow or sell marijuana but rather owns the real estate under medical marijuana companies, you can buy IIPR stock with a clear conscience.
Innovative Industrial Properties is one of only two REITs focused on the cannabis market and, it is the biggest. IIPR owns 108 properties across 19 states with some 8.9 million rentable square feet. It operates under long-term leases, stretching out for nearly 15 years on average. That gives investors confidence it will have a steady and reliable stream of revenue for years to come.
Since marijuana stocks are prohibited from accessing traditional lending sources, they turn to Innovative Industrial for financing. The reclassification of cannabis as a Schedule III drug may open up more opportunities for pot stocks. Lenders, though, are still likely to be leery due to anti-money laundering and racketeering laws.
Even so, marijuana companies may prefer dealing with an institution that understands their business. Innovative Industrial Properties will remain a sin stock with a long runway for growth.
On the date of publication, Rich Duprey held a LONG position in MO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.