The term 'sin stocks' is one that is seldom thrown around on the ASX here in Australia. But it's a phrase our investing friends over in the US would be very familiar with.
Investopedia defines a sin stock as:
"a publicly traded company that is either involved in or associated with an activity that is considered to be unethical or immoral. Sin stocks are generally found in sectors that deal directly with activities are frowned upon because they are perceived as making money from exploiting human weaknesses and frailties."
I like to think of a sin stock as a company that exploits one of our most basic human instincts – the love of a vice.
On the US markets, there are more sin stocks available than you can poke a stick at. There's tobacco companies like Philip Morris International and British American Tobacco, weapons manufacturers like Lockheed Martin and American Outdoor Brands and alcohol companies like Anheuser Busch Inbev and Diageo.
What about ASX sin stocks?
Here in Australia, our markets seem a little more allergic to housing these kinds of companies.
With one notable exception: gambling.
It's well known that (for better or for worse) that gambling is a big part of Australian culture. Well, this has translated to the ASX in a big way. Companies like Aristocrat Leisure Limited (ASX: ALL), Tabcorp Holdings Limited (ASX: TAH) and Crown Resorts Ltd (ASX: CWN) are all 'sin stocks' in my opinion if you take the above definition.
Making money from gambling can be seen as exploiting a human vice. In other words, our love of having a punt – regardless of the mathematical evidence that it will probably be detrimental to the wallet.
Whilst Tabcorp and Crown haven't been the best performing stocks in recent years, Aristocrat has rewarded its shareholders with a 428.5% gain over the past five years – along with a rising dividend.
Should you invest in ASX sin stocks?
Well, that comes down to a question of ethics, not performance. Over in the US, Philip Morris is often cited as one of the best performing stocks of all time. Back in Australia, it seems Aristocrat can be regarded as one of the best shares to have owned over the past few years – despite its main business being the manufacturing of poker machines. On the one hand, you can argue that 'someone has to do it'. Prohibition back in the 1930s didn't do much for stopping people drinking. On the other hand, you may just not feel comfortable making money from human vices – which is a commendable attitude in itself!
If your moral compass isn't turned off by sin stocks, I think history tells us that it can be a lucrative place to invest your cash. Human vices tend to be fairly timeless and I suspect most 'sin stocks' will continue to do very well. But to each their own!
