What Are Sin Stocks and Why Should We Care?

LAGOS (Capital Market in Africa) – Some online gambling companies, like Bet365 and Betway, the parent company of Betway Ghana, are privately owned, meaning that they never listed their stock on any stock exchange. Other major operators like William Hill, Paddy Power Betfair, and the Kindred Group (the owner of Unibet) as well as development and infrastructure providers like NetEnt, are public, with shares traded on stock exchanged ranging from London to Stockholm, and beyond. Investing in these stocks usually comes with the promise of good returns but also with the stigma of questionable ethics. Because they are so-called “sin stocks”.

What are “sin stocks”?
A sin stock is at the opposite end of the spectrum from “ethical investing”. The companies whose stocks are considered “sinful” are usually involved with an activity that is considered immoral, unethical or outright harmful – like the production and distribution of alcohol, tobacco, weapons, adult-oriented industries, and gambling in all its forms. There is no consensus on what stocks could – and should – be considered “sinful”. In many countries, for example, brewing is a long-standing and proud tradition, so brewery stocks are not considered to be “sin stocks”. When it comes to them, there is always an element of ambiguity – basically, deciding if a stock is or isn’t sinful depends entirely on the environment and the “eye of the beholder”.

Examples of sin stocks
Tobacco companies are almost always on the list of sin stocks – think British American Tobacco (LON: BATS), Altria Group (NYSE: MO), and Philip Morris (NYSE: PM). Breweries like Anheuser-Busch InBev (NYSE: BUD), Carlsberg Brewery (OTC: CABHF), and Big Rock Brewery (TSX: BR) are also usually on the list, along with weapons manufacturers like Smith & Wesson Holding Corp (NASDAQ: SWHC), Northrop Grumman (NYSE: NOC), and Raytheon Company (NYSE: RTN), gambling groups like Stars Group (TSE: TSGI), the Las Vegas Sands Corp. (NYSE: LVS), MGM Resorts International (NYSE: MGM), and Wynn Resorts (NYSE: WYNN), among others, and marijuana-related companies and even some pharma companies like Pfizer (NYSE: PFE) are also on the list.

Ethics vs. profits
While the above-mentioned stocks are disagreeable to some investors, the fact is, they are usually sound investments. People are always interested in what they have to offer, so they have a steady stream of consumers and, as a result, continuous profit. And they are usually recession-proof, too, not to mention the fact that the markets they are active in are usually heavily regulated, meaning that the risk of a competitor threatening their market share is pretty low. Sin stocks have generally outperformed socially responsible stocks between 2002 and 2017, the records show. Sin stocks are not for everyone – but for those who are willing to trade them, they can ensure a stream of constant revenue.