Tobacco Stocks Are Smokin’ Hot

| December 6, 2011 | 0 Comments

The holiday season is upon us…

I spent the past weekend with my family getting into the spirit of the holiday season.  For the first time ever, I have a real Christmas tree in my house.  It’s a nice change of pace from the artificial trees we usually have.

Our beautiful Noble Fir came from the tree lot at the local Home Depot (HD).  I’ve got to tell ya, it’s quite an experience picking out a tree with two boys under the age of six.  Their excitement certainly made the whole thing worthwhile.

After our tree was lit and home decorated, we took the boys around the city to check out a few of the Christmas light displays.  On our way home, my five year old noticed a well lit neon sign glowing on one of the buildings we passed.  He wanted to know what those “Christmas lights” said.

Well, the lights weren’t Christmas lights at all.  It was a sign proclaiming “Topless Dancers” at a gentleman’s club right off the freeway.

I couldn’t help but laugh… And I agreed they were indeed nice Christmas lights.  (I wasn’t about to explain that one… thank goodness they can’t read yet!)

It was innocent but it goes to show you vice can’t be avoided in today’s world.  It’s everywhere you go.

What’s more, as an investor, you shouldn’t want to avoid vice.

Let me explain…

Stocks involved with activities some consider to be unethical or immoral are known as vice or sin stocks.  They typically include companies dealing with weapons, tobacco, alcohol, and sex-related products.  But despite their lack of moral virtue, sin stocks have been great investments.

In fact, tobacco stocks are (excuse the pun) smokin’ hot this year.

The three companies who dominate the tobacco business are Altria (MO), Philip Morris (PM), and Lorillard (LO).

So far this year, MO is up a solid 15%, PM has gained 29%, and LO has shot up more than 35%.  And they’ve made the gains while the S&P 500 has struggled to post a 1% loss for the year.

And here’s the best part…

Tobacco stocks also pay healthy dividends.  Right now, Altria has a 5.77% annual dividend yield, Philip Morris pays out at 4.08%, and Lorillard’s is 4.73%.  Try getting returns like that from a CD or a money market… you’d be lucky to get 1% these days.

And I’m not the only one who thinks investing in tobacco stocks is a good idea.  Money managers, like Joel Greenblatt and David Winters, have been building huge positions in PM, LO, and MO this year.

They’re putting their money into these stocks for good reasons.  These are not evil people who want to spread cancer.

Nope.  They’re investing in tobacco stocks because the business is stable and predictable.  And finding an investment with stability and predictability in today’s market is tough to do.

Here’s the bottom line…

No matter how you feel about the products tobacco companies make, you can’t dispute the gains these stocks are making.

Take a look at adding sin stocks to your portfolio.  They may not represent behavior you condone, but they can be great investments during uncertain economic times.

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Category: Stocks

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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