Even “SIN STOCKS” can fall

November 21, 20172 Comments

There is a theory in the investment world surrounding “Sin stocks”– a sin stock being the type of company producing a product or service that violates ones health or might be considered morally questionable. Typical Sin stocks include tobacco, liquor,  and now recreational cannabis, or other such businesses. The theory is that people will always want their booze, smokes or pot. So these products will always have a market.

 

Sometimes you hear from investors who won’t invest in a sin stock–or for that matter, they won’t invest in a company that is considered “unethical” or “environmentally unfriendly” or whatever. The problem with that type of investing is you are entering into the world of philosophy and unanswerable questions. For example:

 

  • Is Tesla and environmentally friendly company? What happens to the batteries and what about the current environmental bi-products of producing electricity needed to charge them?
  • Is legalizing pot going to cause greater addiction and higher costs to police in controlling driving hazards? Or does it offer a safer way to distribute and tax what is already being done on the black market?
  • How well did prohibition help in reducing the rampant desire of North Americans to consume alcohol?

 

It’s a deep rabbit hole to plunge into if you try to determine what is ethically or morally best to invest in. So personally, I just invest in what might be profitable, and leave the ethics up to the philosophers to argue. I’ve always figured that I can choose not to smoke, drink, use pot, etc – but I have no problem in profiting off of a regulated industry whether I buy their products or not. Having said all that – although I don’t smoke pot or tobacco, I am a bit of a boutique wine enthusiast, so there goes my sin-free record!

One of the sin stock groups that may be under seize right now is the tobacco industry.

Vaping is a growing industry. Philip Morris International , Altria Group and British American Tobacco face an increasing threat from e-cigarettes and vaporizer brands. I have read that Vaping is affecting big tobacco’s market share. Bis Research  estimates that:

The global e-cigarette market was estimated to be worth $8 billion in 2015, and is expected to grow at a CAGR of 19.34% throughout the forecast period to become a $46.9 billion industry by 2025.

 You can see on the charts below how the big tobacco companies are underperforming the stock market. It’s not just because of the stock markets low-breadth / concentrated focus on the “flying five stocks“ as I discussed here.

 

These giants are facing competition from the Vaporized tobacco products, along with a growing consciousness of the ill effects of their “smokable” products.

Traditional tobacco product sales are slowing. In its most recent Q3 results, Altria’s net revenues fell 2.5% – the result of weaker net revenues from its smokeable products segment. Similarly, British American Tobacco also saw lower smokeable tobacco volume of 5.6% year over year. Is “smokable” a word, BTW? Whatever the case – I’m sure that big tobacco will get involved in the Vape industry- but it’s really going to be more of an offset for them rather than a growth industry.

I don’t really know of any publicly traded “Vape” companies beyond a very small capped stock (TPB-US) that has been inching into the industry. If you’re aware of public company stocks that are investing in that arena in a concentrated manner I’d be interested in reading about them. If you will be so kind please note them in a comment below. There may be some changing of the guard going on here that could be an investment opportunity now – or in the future.

quote-teal

2 Comments

  • “HOWEVER, FOR THE CURRENT MARKET TO TRULY BE A BUBBLE, WE NEED TO HIT THE POINT WHERE THE MARKET IS GOING UP ALMOST EVERY DAY AND EVERYONE IS TALKING ABOUT IT AND TELLING US HOW IT IS NEVER GOINT TO END. WE HAVEN’T HIT THAT POINT, YET. THE MARKET KEEPS RISING. THAT IS DESPITE:

    THE FED HIKING INTEREST RATES.
    THE ONGOING POLITICAL MACHINATIONS IN WASHINGTON.
    THE ONGOING WARS IN THE MIDDLE EAST.
    A GLOBAL ECONOMY GROWING SLUGGISHLY.
    OVERVALUATION IN THE MARKET.

    PROBABLY THE BIGGEST REASON THE MARKET KEEPS MOVING HIGHER IS BECAUSE OF THE IMMENSE EXPANSION OF CREDIT OVER THE PAST EIGHT YEARS. DEBT, GLOBALLY, HAS BEEN GROWING FASTER THAN THE ECONOMY, ESPECIALLY IN CHINA. AS LONG AS DEBT KEEPS ON EXPANDING AND CAN BE SERVICED, MARKETS COUL KEEP ON RISING.” (…)

    (DAVID CHAPMAN, INVESTORS DIGEST,25 AUGUST 2017)

    PARABOLIC RISE IN THE CARDS?

    Reply

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