These Vice Stocks Look Tempting
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Socially responsible investing is a growing trend among investors all over the world, and there are many good reasons for it. But, how about investing in the so called vice stocks? Companies that are involved in businesses like tobacco, alcohol, gaming or adult entertainment can have very powerful demand drivers and solid fundamentals. If many investors are trying to avoid these kinds of companies, that could create some undervalued opportunities for bargain hunters.
Diageo (NYSE: DEO) is the biggest producer of spirits in the world; the company owns many leading brands like Smirnoff, Johnnie Walker, Guinness, Baileys, Jose Cuervo and Captain Morgan among others. Diageo has performed strongly in different economic environments and should be able to keep growing sales and earnings in the long term. A solid track record of dividend increases and share buybacks brings stability to this stock, it currently pays a juicy 3.6% dividend yield which looks attractive for a high quality business.
Casinos can be very profitable businesses; they have not been performing very well in the US due to the economic context and some excess supply, but growth opportunities in Asia look very promising. Las Vegas Sands (NYSE: LVS) is well positioned to capitalize growth opportunities in this region with its properties in Macau and Singapore. The stock is not cheap at a P/E ratio above 33 and there are some worrying developments like the possibility of online gambling legalization that could hurt this company. It deserves a place in a watch list, but I’m not buying at these prices.
Rick's Cabaret (NASDAQ: RICK) is risky investment, the company is quite small with a market capitalization below 98M USD and business can be unstable. But this nightclub operator is reporting nice earnings growth and offers a discounted valuation, investors with high risk tolerance can find an interesting alternative in this stock. The company has been restructuring operations and that has been positively reflected in its financial statements, this stock looks really cheap trading at a PEG ratio of 0.21.
Companhia de Bebidas das Americas (NYSE: ABV) is a leading bottler of drinks, mostly beer, in Latin America and Canada, the company also distributes Pepsico products in many high growth countries like Brazil. High economic growth for the region implies rising income for the middle class and higher beer consumption. This company is reporting robust growth in sales and earnings and currently yields an attractive 4.2% in dividends. Forward P/E is near 21, so this is not a bargain, but valuation is not too excessive either considering the company´s fundamentals.
Philip Morris International (NYSE: PM) has been a really profitable investment over the last year, with shares rising almost a 30% in the last 12 months. The company has reported strong results, consumers of tobacco products are addicts for the most part, so demand is quite stable regardless of economic conditions. Philip Morris is reasonably valued at a P/E ratio of 16 and the stock pays a 4.1% dividend yield. In the long term, however, this industry has an uncertain future since government regulations and consumer awareness are a big risk for this sector.
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