One category of Wall Street that some portfolio managers really don’t want to discuss in their portfolios is the so-called sin stocks. These are companies that sell tobacco and alcohol products, run gambling casinos, sex-related industries, weapons manufacturers and now even marijuana producers. While at the margin they don’t all seem sinful, some money management companies refuse to own any of them.
We screened our 24/7 Wall St. research database for companies that fall into this rather dubious category and found five stocks that look like outstanding values. They are all rated Buy at major firms on Wall Street and should hold up well even in a protracted bear market.
This maker of tobacco products offers value investors a great entry point now. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.
Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008 it spun off its international cigarette business to shareholders. In December 2018, it acquired 35% of JUUL Labs. Fourth-quarter numbers were solid, and the Merrill Lynch analysts said this:
Altria reported fourth quarter 2018 earnings per share of $0.95, in line versus Merrill Lynch consensus estimates. Smoke-able net sales beat our forecast by $9 million due to stronger price/mix. Altria’s smoke-able shipments were in line. Management provided color on US industry trends, a mid-term category outlook, and insights on its recent investments. We believe that management has made proactive steps to secure long term growth with its evolving platform.
Altria investors are paid a huge 5.66% dividend. The Merrill Lynch price target for the shares is $66, and the Wall Street consensus estimate was last seen at $57.22. The stock closed Monday’s trading at $56.55.
While some investors may be against cannabis companies, the potential upside is huge, and Wall Street is starting to notice. Aurora Cannabis Inc. (NYSE: ACB) produces and distributes medical cannabis products, and it has made a string of acquisitions to grow the scale of its overall business.
This company is vertically integrated and horizontally diversified across various segments of the cannabis value chain, from facility engineering and design to cannabis breeding, genetics research, production, derivatives, high value-add product development, home cultivation, wholesale and retail distribution.
Aurora Cannabis products consist of dried cannabis and cannabis oil, CanniMed vegan capsules and hemp products, and it also sells vaporizers, consumable vaporizer accessories and herb mills for using herbal cannabis products. It also operates CanvasRX, a network of cannabis counseling and outreach centers, and it provides cannabis analytical product testing services.
Jefferies has a $9.15 target price, but Cowen’s price objective is up at $14. The stock closed trading most recently at $9.25 per share.