Sin stocks are shares of companies that produce products many people consider unethical, like tobacco, alcohol, adult entertainment, weapons, gambling services, and oil. There are a few reasons investors might want to add sin stocks to their portfolios. However, many investors seek to exclude these companies by choosing environmental, social, and governance (ESG) portfolios. We'll cover what investors need to know about investing in sin stocks.
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What is a sin stock?
What is a sin stock?
A sin stock is a share of a company that offers goods and services that are controversial and that many people believe to be unethical. Examples include companies that produce tobacco and alcohol, casinos and gaming companies, weapons manufacturers, big oil companies, and those involved in adult entertainment. Sometimes, sin stocks are referred to as vice stocks.
The definition of a sin stock isn't entirely clear-cut. For example, some people would consider marijuana stocks to be sin stocks. But as medical marijuana becomes more widely accepted, many people no longer associate marijuana companies with vice.
A company can also engage in unethical behavior, even if it doesn't meet the definition of a sin stock. Think back to the actions of big banks leading up to the financial crisis of 2007-2009. Or think of the many companies that produce everyday items like clothing in dangerous factories, sometimes using questionable labor practices.
Why invest in sin stocks?
Why would someone invest in sin stocks?
An investor may deliberately seek out sin stocks for their portfolio for various reasons. Many demonstrate solid financial performance and are reliable dividend stocks.
Sin stock companies often produce products with relatively inelastic demand. That means if the prices go up, customers typically don't respond by decreasing their consumption by a corresponding amount.
For example, if the price of cigarettes or beer shoots up by 20%, smokers typically won't smoke 20% fewer cigarettes, nor will beer enthusiasts drink 20% less beer. As a result, these businesses are often thought to hold up well during recessions.
Also, sin stock industries are often highly regulated. Because of the high barriers to entry, many companies associated with vice are relatively insulated from competition.
Can you avoid sin stocks?
Can you avoid sin stocks?
Avoiding sin stocks isn't quite as straightforward as it seems. For example, if you own an S&P 500 fund, you're investing in Philip Morris International (PM 0.78%), ExxonMobil (XOM -0.07%), and several gambling and gaming companies.
However, some exchange-traded funds (ETFs) and mutual funds, particularly those with an ESG focus, exclude many categories of sin stocks altogether. Many ESG funds invest in a broad market index, like the S&P 500, but apply a screen, filtering out companies involved in controversial business or that don't adhere to certain sustainability approaches.
Related investing topics
Sin stock example
Example of a sin stock
Tobacco company Philip Morris is widely regarded as a sin stock. In 2023, it held a roughly 47% market share for cigarettes in the U.S., with Marlboro cigarettes by far its most popular product. However, its IQOS tobacco product, which the company says is safer than standard cigarettes, now accounts for over one-third of its net revenue.
The company is controversial among investors and has long been a target of lawsuits. Although it's underperformed the S&P 500 index over the past decade, it's a favorite among dividend investors. In mid-March 2024, it had an annual dividend yield of around 5.5%.
Robin Hartill has no position in any of the stocks mentioned. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
FAQs
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Sin stocks, also known as vice stocks, are shares of companies that operate in industries often considered unethical or immoral. Alcohol, tobacco, gambling, cannabis, adult entertainment and weapons are the most common industries associated with the term.
What is the success rate of the Motley Fool stock picks? ›
The Motley Fool Stock Advisor service boasts a record where 48% of its stock recommendations have outperformed the S&P 500 since the inception of the service in 2002. According to my independent assessment, the stocks that beat the market did so by a wide margin, with top performers significantly leading the S&P 500.
Are sin stocks a good investment? ›
Various studies show that sin stocks deliver better returns than stocks in general. There are several explanations for this. One of them is that sin stocks are undervalued because many investors avoid them.
What are the 5 AI stocks Motley Fool recommends? ›
Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia.
What stock does The Motley Fool recommend in 2024? ›
The Motley Fool recommends Nu Holdings.
Is there an ETF for SIN stocks? ›
Issuers like Invesco, VanEck, ETFMG, and AdvisorShares all offer ETFs that invest along these lines, a socially responsible investor's nightmare. Finally, if you'd like a little bit more diversification, you can try the Invesco Leisure and Entertainment ETF (PEJ).
What does God say about investing in stocks? ›
The Bible doesn't specifically state that we should invest, but also does not forbid it. Investing is mentioned in Proverbs 31:16 and used in Jesus's parables (ex. Parable of the Ten Minas found in Luke 19:11-27), implying that it is expected and normal.
What is the riskiest type of stock? ›
Equities are generally considered the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the successes and failures of private businesses in a fiercely competitive marketplace. Equity investing involves buying stock in a private company or group of companies.
What is the 4% rule Motley Fool? ›
It states that you can comfortably withdraw 4% of your savings in your first year of retirement and adjust that amount for inflation for every subsequent year without risking running out of money for at least 30 years.
Applying the Rule of 72, you simply divide 72 by 10. This says the investment will need to go up 7.2% annually to double in 10 years. You could also start with your expected rate of return in mind. Perhaps you expect a stock to go up in value by 15% annually.
What's better than Motley Fool? ›
The best stock advice websites include Motley Fool Stock Advisor, Seeking Alpha, and Moby. These platforms offer in-depth stock analysis and investing research to help you make informed decisions.
Do sin stocks have higher or lower expected returns? ›
As the shunned-stock hypothesis suggests, sin stocks have not only provided higher returns than the market portfolio but higher risk-adjusted returns as well.
What is the performance of sin stocks? ›
annual excess market returns range from 5.27% for Adult Services to 26.35% for Gaming. The risk-adjusted excess return for Adult Services is 1.40% and 49.15% for Gaming.
What is the most valuable stock to invest in? ›
Berkshire Hathaway is the most expensive stock listed on U.S. exchanges.
What is a very good stock to invest in right now? ›
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| Company (ticker) | Analysts' consensus recommendation score | Analysts' consensus recommendation |
|---|
| United Airlines (UAL) | 1.46 | Strong Buy |
| ServiceNow (NOW) | 1.48 | Strong Buy |
| Meta Platfoms (META) | 1.48 | Strong Buy |
| Targa Resources (TRGP) | 1.48 | Strong Buy |
15 more rowsIf you want an exciting stock picking service that helps you build a portfolio of 10 or more stocks, The Motley Fool has you covered. Morningstar is the right choice for those who want a broader and more measured approach to picking their own investments.
What are the best growth stocks to buy right now? ›
Best-performing growth stocks
| Ticker | Company | Performance (Year) |
|---|
| NU | Nu Holdings Ltd | 117.52% |
| EAT | Brinker International, Inc. | 117.24% |
| HIMS | Hims & Hers Health Inc | 115.42% |
| COIN | Coinbase Global Inc | 114.46% |
17 more rowsSep 3, 2024
