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5 Sin Stocks to Buy That May Survive a Massive Market Sell-Off

Almost regardless of what happens these days, the market pushes higher. Impeach the president? Bomb an Iranian general? Potential epidemic as a result of the coronavirus? Potential for a progressive socialist to be elected president? No problem, and no worries, because thanks to excess central bank provided liquidity and the constant flow of money into passive index funds, the top stocks that influence the indexes keep pushing everything higher.

The reality is the sell-off is coming, and while it doesn’t mean a market crash necessarily, it could mean a fast and furious 10%, 15% or maybe even 20% bear market territory drop. We have been looking for ideas that could perhaps stand up best in a swift sell-off, and the group known as the sin stocks may be just the ticket for worried investors.

One of the categories of Wall Street that some portfolio managers really don’t want to discuss in their portfolios are the so-called sin stocks. These are companies that sell tobacco and alcohol products, run gambling casinos, sex-related industries, weapons manufacturers, and now even marijuana producers. While at the margin they don’t all seem sinful, some money management companies refuse to own any of them.

We screened the Merrill Lynch research universe database for companies that fall into this category and found five stocks that look like outstanding values. They are all rated Buy and should hold up reasonably well even in a protracted bear market.

Altria

This maker of tobacco products still offers value investors a great entry point and was hit recently as cigarette sales have slowed. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro, one of the most valuable brands in the world.

Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008, it spun off its international cigarette business to shareholders. In December 2018, the company acquired 35% of Juul Labs, and while there have been some negative headlines on vaping recently, the trend is probably here to stay. Altria also has purchased a 45% stake in cannabis company Cronus for $1.8 billion.

The negative press on vaping has been a big headwind, and the crash in marijuana stock prices have weighed on this worldwide leader. In addition, the legal age to buy tobacco products recently was raised to 21. Despite all the headwinds, investors are still able to buy the stock at a very reasonable price.

Investors pocket a huge 7.37% dividend. Merrill Lynch has a $60 price objective on the shares, while the Wall Street consensus target is $55.11. Altria stock closed on Tuesday at $45.57 a share.

Boyd Gaming

This remains a Wall Street gaming favorite. Boyd Gaming Corp. (NYSE: BYD) operates as a multi-jurisdictional gaming company through three segments: Las Vegas Locals, Downtown Las Vegas and Midwest and South. The company owns and operates gaming entertainment properties located in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi.

The company also owns and operates a travel agency and a captive insurance company that underwrites travel-related insurance in Hawaii. As of December 31, 2017, the company owned and operated 24 gaming entertainment properties, offering a total of 1,358,856 square feet of casino space, 30,267 slot machines, 632 table games and 9,372 hotel rooms.

Boyd remains a favorite for Las Vegas locals and is substantially levered to the Las Vegas market. The company generally targets largely locals in this market. The company’s downtown properties also draw Hawaiian tourists. In general, Las Vegas locals performance is less affected by weekends versus weekdays in a period than other gaming markets would be, as a substantial portion of the local economy works in hospitality.

Boyd Gaming pays shareholders just a 0.85% dividend. The Merrill Lynch price target is $34, and the consensus target is $35. The shares closed most recently at $33.06 apiece.

Canopy Growth

This is probably one of the safer plays in the marijuana stock arena, which has been hammered over the past year. Canopy Growth Corp. (NYSE: CGC) engages in growing, possession and sale of medical cannabis in Canada. Its products include dried flowers, oils and concentrates, softgel capsules and hemps. The company offers its products under the Tweed, Black Label, Spectrum Cannabis, DNA Genetics, Leafs by Snoop, Bedrocan Canada, CraftGrow and Foria brands.

By many metrics (e.g., cultivation, sales, market cap), Canopy Growth is the largest legal cannabis company globally. Beverage company Constellation Brands is its largest shareholder, after a $4 billion investment in 2018, which could grow to more than 50% ownership with the exercise of additional warrants in the coming years.

The $27.59 Merrill Lynch price target is well above the most recent close at $19.91 per share. No consensus target was available.

Diageo

This is one of the largest producers of alcoholic beverages in the world. Diageo PLC (NYSE: DEO) produces, markets and sells alcoholic beverages worldwide, including scotch whiskey, gin, vodka, rum, beer, Irish cream liqueurs, wine, Raki, tequila, Canadian and American whiskey, Cachaça and brandy, as well as adult beverages and ready to drink products. The company’s premium brands include Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray, and Guinness.

Its reserve brands include Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie Walker Gold Label 18 year old, Johnnie Walker Gold Label Reserve, Johnnie Walker Platinum Label 18 year old, John Walker & Sons Collection, Johnnie Walker The Gold Route, Johnnie Walker The Royal Route, and other Johnnie Walker super premium brands, as well as The Singleton, Cardhu, Talisker, Lagavulin and other malt brands.

Shareholders receive a 2.17% dividend. Merrill Lynch has set a $169 price target. The consensus target is $168.46, and Diageo stock closed at $161.69.

Raytheon

This company has a diversified mix of business and its stock is on the Merrill Lynch US 1 list. Raytheon Co. (NYSE: RTN) is an industry leader in defense, government electronics, space, information technology and technical services. The company operates in four principal business segments: Integrated Defense Systems, Intelligence, Information and Services, Missile Systems, and Space and Airborne Systems. It is among the companies that make the most from the U.S. government.

With a history of innovation spanning 97 years, Raytheon provides state-of-the-art electronics, mission systems integration, C5I products and services, sensing, effects and mission support for customers in more than 80 countries.

Last summer, United Technologies and Raytheon agreed to merge their businesses to create a new aerospace and defense powerhouse. The two companies have received unanimous approval from their respective boards. The new company will be called Raytheon Technologies. The deal is expected to close in the second quarter of this year

Shareholders receive a 1.64% dividend. The Merrill Lynch price objective is $270. The Wall Street consensus target price is $244.46. Raytheon stock closed at $229.31 on Tuesday.