The Vices
Mary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I remember when I first stumbled across The Vice Fund (VICEX). My first reaction was that there must be some very cynical people in this world. My second reaction was that they are probably right. Several socially responsible investing funds began popping up in response to this fund. They were all outperformed by bad habits. Giving up any bad habit such as drinking or smoking takes quite an emotional toll on a person. When they have no job, their home is getting foreclosed on, and their car repossessed, the success rate for quitting smoking at the same time is pretty much zero. The stress of quitting on top of financial worries does not mesh well. Any good psychiatrist would agree with that. So The Vice Fund, though cynical, had a point.
Drinking is one of the most widespread vices. Even those that do not go out and drink on their own will refer to themselves as social drinkers. It is necessary to fit in with most social circles. Whether it is Cosmos with the girls or beer with the boys. Anheuser-Busch (NYSE: BUD) really knows how to take advantage of this phenomenon. Their most recent earnings report topped estimates. Net profit increased a dramatic 63% in Q4 2011. Their normalized earnings increased to $4.2 billion from $3.9 billion the year prior. The brewer's flagship brands, Budweiser and Stella Artois, drove earnings for the quarter. Stella Artois experienced growth of over 200% in Brazil, as well as double digit growth in the U.S. and Argentina. Certainly Anheuser-Busch must be doing something right. Their brands are globally recognized already, yet they continue to gain steam and grow in popularity.
Another popular vice is smoking. Smoking, unlike drinking, goes through cycles of trendiness. It might not be cool now, but wait a few years and it will be back in style. Philip Morris (NYSE: PM) is the largest tobacco company in the U.S. Unlike Anheuser-Busch, Philip Morris can expect to spend hefty amounts on litigation. The U.S. has grown fond of targetting big tobacco for its addictive qualities as well as the health issues it can present. So, in addition to building its brand, Philip Morris also spends money to put out anti-smoking campaigns to give it the appearance of a socially responsible company. It is an expensive industry with high barriers to entry. Philip Morris will likely remain the largest provider of cigarettes for some time yet.
Now, if only we had a publicly traded marijuana company, we could round out the group here. We should all follow suit with California because that could be big business. Well, it is already a big business for some, but I, for one, would appreciate the opportunity to profit from it in a legal fashion. At any rate, vices are all around us. The Vice Fund had a good vision. Anheuser-Busch and Philip Morris are good solid investments. Though Busch is arguably a little freer to spread its wings.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
