Last week investors showed a degree of panic as the Treasury market saw some serious selling and interest rates went higher across all maturities. The stock market didn’t take it very well and shares were pummeled. The reality is that historically rates are still very low, and the spread between the five-year and the 30-year notes is a paltry 32 basis points. Nevertheless, investors are scared, and the sellers had the upper hand.
With the stock market probably still the best place for investing, and the United States still the best-developed market to invest in, one area for worried investors to consider is the so-called sin stocks, which include everything from tobacco to alcohol to gambling, even to military-related defense companies.
We screened the Merrill Lynch research universe for sin stock companies that are rated Buy and also pay a good dividend. We found five that should still be standing even in a massive market sell-off.
Shares of this maker of tobacco products and wine have been hit hard and offer value investors a great entry point. Altria Group Inc. (NYSE: MO) is a top mega-cap consumer discretionary stock to buy, and the company’s Marlboro brand remains one of the most recognizable in the world. Many Wall Street analysts concede that the stock has solid downside support owing to the generous dividend yield, which remains at a huge premium in relation to the 10-year Treasury rate.
Cash flow generation and the return of cash to Altria shareholders remain key facets of the company’s total shareholder return plan. The analysts expect continued support of the strong dividend, in addition to continued share repurchase activity. The board also raised the dividend by 8.2% in 2017.
To diversify away from cigarettes and cigars, Altria has expanded its portfolio into new categories like wine and e-cigarettes, and the company also has a 9.6% stake in Anheuser-Busch InBev.
Altria investors are paid a hefty 5.26% dividend. The Merrill Lynch price target for the stock is $70, and the Wall Street consensus estimate was last seen at $67.52 The stock closed trading on Friday at $62.07 per share.
If there is any company with products that stay in style, it is this one, which only has 7% foreign sales. Constellation Brands Inc. (NYSE: STZ) is a leading global producer and marketer of beverage alcohol. Its wide-ranging portfolio spans wine, spirits and imported beer. The company is one the world’s largest wine companies overall and is the largest global premium wine company. Key brands include Robert Mondavi, Clos du Bois, Blackstone, Arbor Mist, Black Velvet and SVEDKA vodka. It also owns 100% of the rights to brew, market and sell Modelo’s Mexican beers in the United States.
The company posted solid quarterly results recently, and the Merrill Lynch analysts raised their earnings estimates for fiscal 2019. Trading at about 23.8 times earnings, the shares aren’t cheap, but the analysts feel there is still solid upside potential.
Investors in Constellation Brands are paid a small 1.38% dividend. Merrill Lynch has a price target of $240, and the posted consensus target is $244.50. The stock closed trading on Friday at $223.18.