It seems that regardless of what happens these days, the market pushes higher. Impeach the president after he leaves office? Elect a new president vowing to raise taxes? Ongoing pandemic as a result of the coronavirus? Continued rioting in major cities? No problem, because thanks to excess central bank provided liquidity, a huge increase in retail trading volume and the constant flow of money into passive index funds, the top stocks that influence the indexes keep pushing everything higher.
The reality is the sell-off is probably coming, and while it doesn’t mean a market crash necessarily, it could mean a fast and furious 10%, 15% or even 20% bear market territory drop. We have been looking for ideas that could stand up best in a swift sell-off, and the group known as the sin stocks may be just the ticket for worried investors.
Some portfolio managers really don’t want to discuss having sin stocks in their portfolios. These are shares of companies that sell tobacco and alcohol products, run gambling casinos, are in sex-related industries or are weapons manufacturers and even marijuana producers. While at the margin they do not all seem sinful, some money management companies refuse to own any of them.
We screened the BofA Securities research database for companies that fall into this rather dubious category, and found four stocks that look like outstanding values. They are all rated Buy and should hold up well even in a protracted bear market. It’s important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Altria
This maker of tobacco products offers value investors a great entry point now and was hit recently as cigarette sales have slowed. 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, one of the most valuable brands in the world.
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, the company acquired 35% of Juul Labs, and it has purchased a 45% stake in cannabis company Cronus for $1.8 billion.
Shareholders receive an 8.20% dividend. BofA Securities has a $53 target on the shares, and the Wall Street consensus target is $48.33. Altria stock closed on Tuesday at $42.23.
Diageo
This is one of the largest producers of alcoholic beverages in the world. Diageo PLC (NYSE: DEO) produces, markets and sells alcoholic beverages worldwide, including scotch whiskey, gin, vodka, rum, beer, Irish cream liqueurs, wine, Raki, tequila, Canadian and American whiskey, Cachaça and brandy, as well as adult beverages and ready to drink products. The company’s premium brands include Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness.
Its reserve brands include Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie Walker Gold Label 18 year old, Johnnie Walker Gold Label Reserve, Johnnie Walker Platinum Label 18 year old, John Walker & Sons Collection, Johnnie Walker The Gold Route, Johnnie Walker The Royal Route, and other Johnnie Walker super premium brands, as well as The Singleton, Cardhu, Talisker, Lagavulin and other malt brands.
Shareholders receive a 2.23% dividend. The BofA Securities price target is $195, well above the $184.57 consensus target. The last Diageo stock trade on Tuesday hit the tape at $161.09.
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