As all eyeballs focus on the remarkable record-breaking ascent of the major indices, less attention is paid on defensive names. That’s only natural because of immediacy bias or the tendency to perceive current emotions as more intense than previous emotions. Nevertheless, it might be time to think about hedging against this soaring valuation and what better way to do so than with vice stocks?
Primarily, vice stocks feed into the cynical nature of the investing world. For instance, every year, Americans — and really many cultures across the globe — tend to make goals for themselves as the Earth sets out to make its 365-day orbit around the sun. But let’s be real: most of us break our resolutions. According to studies, around 80% of such goals get abandoned, which actually bodes well for vice stocks.
Typically, most folks want to lose weight. Given the lockdowns and a several curtailing of non-essential activities which the novel coronavirus pandemic imposed, losing weight surely ranked highly earlier this year. However, even with this context in mind, I’m almost certain that people have also largely given up. Basically, the underlying businesses associated with vice stocks are too tempting.
Also, such businesses tend to be on the fun side of the scale. It’s not surprising that when it comes to addictions, they’re tied to activities that if money and social mores were no objects, we’d find ourselves doing them all the time. No one puts school textbook publishers on a list of vice stocks because honestly, what kind of vice would that be?
Further, this sector may also be ideal for uncertain economic times, such as the present moment. While consumers will give up discretionary purchases to make ends meet, when there a strong emotional connection exists to the product or service, it’s difficult to say no. Yes, it’s a terribly cynical thesis but here are some vice stocks to consider.
- RCI Hospitality (NASDAQ:RICK)
- Church & Dwight (NYSE:CHD)
- Ferrari (NYSE:RACE)
- Coca-Cola (NYSE:KO)
- FAT Brands (NASDAQ:FAT)
- Smith & Wesson Brands (NASDAQ:SWBI)
- Lions Gate Entertainment (NYSE:LGF.A, NYSE:LGF.B)
For perspective, please don’t interpret this list as a knock on these companies’ ethical principles. In reality, there are very few universally disliked vice stocks (only private prisons come to mind). Instead, consider this a lighthearted take on how you can expand your options during these uncertain times.
Vice Stocks To Buy: RCI Hospitality (RICK)
RCI Hospitality starts off this list of vice stocks because of its unique profile. For one thing, it’s an obvious sin play — look up what it does (just not at work). However, many people don’t realize that RICK stock can also be considered an environmental, social and governance (ESG) investment.
First, RCI Hospitality specializes in fabric-free establishments. In an era where government bodies are worried about waste, there is little waste (or little left to the imagination) with RCI. Second, the company offers a social outlet for those who are marginalized in the dating arena. Finally, RCI completes the ESG trifecta with governance regarding the gender pay gap. In this case, the gap favors women by a wide margin.
Of course, I’m being facetious but at the same time, if it helps you justify your acquisition of RICK stock, by all means use it. But on a more serious note, these entertainment establishments have proven to be resilient in the last recession, implying that RICK can do well in a deflationary cycle.
To be fair, the lingering impact of the pandemic is a risk. However, pent-up demand for in-person hospitality could swing the needle favorably in the long run.
Church & Dwight (CHD)
Ordinarily, Church & Dwight would rarely show up on a list of vice stocks. But in the context of this article, CHD stock might be something to consider because some of its underlying products do tend to ride the indulgent side of the consumer products spectrum.
I don’t know how much I can reveal without making the algorithms angry. So for now, I’ll just say that one of Church & Dwight’s products centers on personal protection — and I’m not talking about the Second Amendment (which of course we’re going to get into later).
But how much exposure does CHD really have toward the business of vice stocks? Obviously, not nearly as much as something like RCI Hospitality. That said, you have two components going on here. First, with Covid-19 cases generally declining — though there is a spike in new cases we should monitor to be fair — singles will again be looking to mingle.
Thus, you have the pent-up demand argument which I don’t need to explain any further. But in addition, should the circumstances of the pandemic worsen yet again, you can rely on the company’s core consumer staples brands.
Vice Stocks To Buy: Ferrari (RACE)
Another company that typically doesn’t make it on a list of vice stocks to buy, I’m including world-famous Ferrari because it covers three of the seven deadly sins: pride, greed and lust (for superfluous material goods). While it’s not really a sin play — people can buy whatever they want with their money within obvious boundaries — it’s difficult not to view Ferrari with some magnitude of social criticism.
For instance, the cheapest new Ferrari you can buy is the Portofino, which comes in at a really-not-that-cheap $215,000. In contrast, the average home price in the U.S. as of May 2021 is $287,148. So you can be a three-fourths of a cash buyer for a home or you can buy an “economy” model Ferrari.
Plus, there’s always that criticism that people with that kind of cash burning a hole in their wallet can do better for society. After all, you can’t take this crap with you when it’s time to meet your maker.
Nevertheless, if you can overlook the “sinful” element of Ferrari, RACE stock makes sense in that you’re dealing with a very affluent clientele. Put another way, this is the one consumer demographic that will not be worried about a possible upcoming recession.
Coca-Cola (KO)
Recently, continuous glucose monitoring (CGM) device manufacturer Senseonics (NYSEAMERICAN:SENS) has been generating headlines thanks to its strong following on social media. But the underlying CGM device is also worthy of its own praise, which allows diabetes patients greater freedom. Not wanting to be left behind, other companies, including Abbott Laboratories (NYSE:ABT) also have their own CGM equipment.
Eventually, the biotechnology industry may even get rid of monitoring and management solutions and finally cure the condition. Of course, there’s not much of a profitability incentive in cures as opposed to management. Moreover, you have companies like Coca-Cola, which is not exactly helping the situation when it comes to facilitating societal health.
I’m not suggesting that Coca-Cola is in the business of giving people diabetes. But take this warning from Healthline.com: “Drinking high amounts of sugar-sweetened beverages — such as soda — can have various adverse impacts on your health. These range from increased chances of tooth decay to a higher risk of heart disease and metabolic disorders like type 2 diabetes.”
Certainly, there’s personal choice involved. However, because sugary sodas are addictive, Coca-Cola is not going to get a pass regarding this list of vice stocks. It’s a sin play, no doubt about it but it could be a long-term profitable one.
Vice Stocks To Buy: FAT Brands (FAT)
With society recognizing the slights and grievances that people impose on others based on a range of factors — weight-related issues being one of them — Fat Brands may very well be the last of its kind. Don’t be surprised if eventually, the awakening movement asks the company to rebrand itself to align with a more body-positive image.
For now, what we have is a company that basically laughs in the face of moderation. Of course, this is not going to sit well with public health advocates, who have long warned about America’s growing waistline. But it’s probably too late. As an example, studies show that one-third of youth are too obese for military service. And with a name like Fat Brands, the company isn’t helping the matter.
Nevertheless, this is one vice that is delectable and tempting. I’ve had Fat Brands’ iconic Fatburger and it’s truly decadent. Naturally, I wouldn’t recommend a daily dose of the stuff as it can’t be good for your health. Given its popularity, though, inclusion of FAT stock in your portfolio might expand your profitability over the long haul due to pent-up demand.
Smith & Wesson Brands (SWBI)
As I promised earlier, I’m including one of the “vice-st” of vice stocks with Smith & Wesson Brands. Due to the partisan nature of firearms, many folks do not appreciate a negative label being attached to the underlying industry. Honestly, though, when it comes to something like SWBI stock, you can’t avoid its longstanding bad boy image.
As one firearms enthusiast told me, you can never take the gun out of the equation when it comes to responsible ownership laws. For instance, police arrested three men, who were found with a cache of weapons at a Denver hotel near the site of Major League Baseball’s All-Star Game. However, the FBI quickly downplayed any potential threat to the game as the defendants claimed they were conducting guns and drugs transactions.
It’s strange that of all the places these dudes could have chosen for their illegal trade, they chose the All-Star Game. Personally, I think we got away with one.
But the bottom line is that no, you really can’t take guns out of the equation. At the same time, regular folks are worried about the escalation of extreme violence. Since criminals are already outgunning law-abiding citizens in terms of aggression and weaponry, we have no choice but to allow legal gun ownership.
Admittedly, SWBI is one of the trickiest vice stocks but I think it’s a long-term buy based on the fracturing of society.
Vice Stocks To Buy: Lions Gate Entertainment (LGF.A, LGF.B)
In most contexts, content production companies don’t fall under vice stocks, that is unless you’re talking about Lions Gate Entertainment. Now, before I tick off any fans of LGF.A stock and its underlying business, please hear me out: I love many of the films which the company produces. But the problem is that much if not most of the content is very gritty or downright violent.
Perhaps the most notable film under the Lions Gate brand is the Saw franchise. If you look beyond the graphic displays of torture and sadism, you can extract several cultural and societal critiques. More than likely, though, the audience is there to watch torture — which is frightening if you think about it.
Debate rages on the topic but at least some evidence suggests that watching horror films is not good for your health. According to Healthline.com, binge-watching horror movies “increases the regularity of adrenaline in the body, worsening issues with sleep.”
Still, the issue is that horror fans love this adrenaline rush. So while LGF.B stock technically falls under the vice stocks category, I’d be a buyer and a consumer.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.