Imperial Brands

Oct 20, 2024

Joanne Hart reveals the VERY un-woke 'sin stocks' that could earn YOU a packet Hollywood star Mae West once said: "It ain't no sin if you crack a few laws now and then, just so long as you don't break any." But ideas of what constitutes a sin have changed since her day. When West was breaking box office records in the 1930s, smoking and drinking were almost de rigueur. Driving was a pleasure and gas-guzzling motors were a source of pride. Even gambling was in fashion, with Las Vegas on the make as a gaming venue and fun spot. Today, some investors take a dim view of such activities. Listed companies involved in booze, betting , fags and fuel are described in the investment world as 'sin stocks', along with arms firms and defence companies. Not that long ago, it seemed as if these businesses were hurtling towards their sell-by date. Business Bulletin Green investing was all the rage and ethically minded savers were turning their backs on dozens of companies that were deemed damaging to our health and our green and pleasant land. The cost-of-living squeeze changed that mindset, along with Vladimir Putin's war on Ukraine which shifted attitudes towards defence stocks. Investors are looking with fresh eyes at making money from human vices, and from the efforts to keep the world safe from all-out war. So does sin pay on the stock market or should we seek our rewards in more virtuous industries? GAMBLING FIRMS based in Dublin, Paddy Power and Betfair-owner Flutter Entertainment has become the world's largest sports betting and online gaming operator, with around 14m punters parting with hard-earned cash every single month. This year alone, Flutter is expected to deliver sales of €12.75bn and is aiming for €19.2bn by 2027, with profits soaring. Such big numbers make gambling firms an easy target. UK Chancellor Rachel Reeves is thought to be mulling a £3bn tax raid on the industry in her forthcoming Budget. But Flutter is still a top-performing sinner, quadrupling in price over the past decade, with several dividend payments thrown in for good measure. Even after dipping earlier this week, shares have soared more than 30pc over the past year and cost almost €210 apiece. But shares in rival Entain have slumped from €25.1 to little more than €8.3 in the past three years, as the group behind Ladbrokes and Coral have battled setbacks, including allegations of bribery in Turkey, culminating in a €735m payment deal. On a ten-year basis, however, Entain still beats the wider market. But even if gamblers fancy the odds on this one, cautious types would probably prefer to steer clear. BACKING DEFENCE STOCKS Not that long ago, defence stocks were associated with warmongering, and the sale of arms was widely considered a dirty business. Russia's invasion of Ukraine turned that type of thinking on its head. Today, firms such as BAE Systems, Qinetiq and Cohort are recognised as providing a vital service, keeping innocent civilians safe from harm. BAE is the giant of the trio, valued on the stock market at almost €84bn. Cohort is the baby, valued at less than €478m. Qinetiq has a value of just over €3bn. Shares in all three have soared however, and there should be more to come. Countries the world over are upping defence budgets in response to growing turmoil. BAE shares are up 137pc since the start of 2022 and Qinetiq has seen its shares rise by 70pc over the same period. As for Cohort, its shares have increased 58pc this year alone. ENERGY GIANTS OIL, gas and coal are responsible for more than 80pc of greenhouse gas emissions. As giants in the sector, BP and Shell have long battled 107 x 58 green lobbyists. Desperately trying to burnish environmental credentials, BP adopted the logo Beyond Petroleum. Shell, meanwhile, declared an ambition to become the world's biggest producer of renewable energy - a target that was quietly dropped as it pivoted to a focus on profitable growth. BP is also expected to abandon plans to cut oil and gas production, under pressure from hardnosed investors. With shares at £25.10, Shell has produced total returns of around 90pc over the past decade, including dividends. BP, whose shares have fallen by 7pc over the past decade, is playing catch-up but that could mean there is more to go for at £3.91 a share. TOBACCO FIRMS The London stock market boasts two tobacco giants, British American Tobacco and Imperial Brands. Despite knowing that smoking is a killer, we still do it. Around 12pc of adults smoke in the UK, down from 20pc a few years ago but still more than 6m nationwide. Around the world, 1bn smokers light up each day, with smoking a national past-time in countries from Indonesia to Serbia. Both firms have been working hard to build a presence in so-called next generation products - vapes, nicotine pouches and gadgets that heat tobacco rather than burn it. Sales have been growing. Nonetheless, BAT makes most of its money from cigarettes and Imperial has yet to turn a profit from vapes and the like. Until recently, stock market investors were not interested. Shares in the firms more than halved. Both are still well below former peaks but prices have recovered sharply in recent months. BAT shares are up by 18pc this year and Imperial Brands have risen by 25pc. Many savers might still feel uneasy profiting from tobacco. Those with fewer scruples might consider both firms' track record and conclude there is still money to be made. ALCOHOL STOCKS According to UK government data, Brits consume around 18 units of alcohol a week - equivalent to around two bottles of 12pc wine each. That's less than France and Germany but more than the NHS would like. They also have a particular tendency to binge, guzzling most of those units on one or two nights a week. Because of this, investors might think drinks firms and brewers would deliver fabulous returns. Sadly not. Diageo, maker of Smirnoff, Johnnie Walker, Guinness and Baileys, is valued at almost €72bn. Shares soared to more than €48 in 2022. But the stock has tumbled to little more than €30, hit by tough economic conditions. Covid-19, meanwhile, hit brewers and publicans hard and most have yet to fully recover. Take Shepherd Neame, the UK's oldest brewer. Based in Faversham, Kent, it can trace its roots back to 1147. Recent years have not been kind. Shares have more than halved to €6.93, even though sales and profits are rising. But chief executive Jonathan Neame is confident about the future, with plenty of plans for growth. Fans of family-run businesses could do worse than take a punt on Shepherd Neame. Founded in 1831, Young's & Co's shares have been hammered since 2020, virtually halving to €10.75. Brokers believe the stock is worth more than €18 - and the numbers stack up - but, with rumours that the UK Chancellor might clobber Aim stocks in her budget, only the bravest investors will hit on Young's shares. Flutter Entertainment has become the world's largest sports betting and online gaming operator, with around 14m punters parting with hard-earned cash every single month. (Photo by Spencer Platt/Getty Images) SHOULD YOU BUY SIN STOCKS? Some investors swear by sin stocks, arguing that they provide goods and services that are essential, addictive or just too tempting. A look at our list of reprobates, however, shows marked differences between the sinners. Right now, investor emphasis seems to be fixed on financial returns but that may shift again in time. Ultimately then, similar rules apply across the market, to saints, sinners and everyone in between. You win some, you lose some, but firms with shrewd managers, attractive products and keen prices should deliver the goods over time. ___