New Sin Stocks to Avoid

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"Value investing" or "growth investing" are easy to define. But socially responsible investing, which shuns sinful stocks, can be a more slippery concept. After all, what you call a "sin stock" may seem just fine to another investor. To keep pace with changing times, we'd like to suggest another kind of stock that socially responsible investors might want to snub.

The changing face of vice
Some traditional sin stocks are no-brainers. Altria (NYSE: MO  ) profits from selling unhealthy, addictive cigarettes, which many opponents argue have vast social costs. And if you're ethically opposed to war and militarism, Raytheon (NYSE: RTN  ) probably isn't up your alley.

However, the aftermath of the financial crisis has earned another segment a spot on some investors' ethical spit list. The Associated Press recently reported that the socially responsible Appleseed Fund recently added a new category to avoid: "too big to fail" banks like Bank of America (NYSE: BAC  ) , Citigroup (NYSE: C  ) , Goldman Sachs (NYSE: GS  ) , JP Morgan Chase (NYSE: JPM  ) , or Morgan Stanley (NYSE: MS  ) .

Bad banks! No biscuit!
The Appleseed Fund makes a good, valid point here. We've all been forced to pay for many big financial companies' poor decisions, in myriad ways. The banks had privatized profits and socialized losses, which hardly sounds "socially responsible" to me.

More importantly, those systemic problems haven't gone anywhere. Congressional Oversight Panel Chairwoman Elizabeth Warren has butted heads with Treasury Secretary Timothy Geithner, arguing that neither the banks at fault nor the government charged with the cleanup have fixed the problems that caused the financial crisis to begin with. Without the government's help, Warren does not believe that the banks are truly sound.

The big banks' involvement with derivatives also figured into The Appleseed Fund's decision. The fund cited Warren Buffett's description of derivatives as "financial weapons of mass destruction." (Perhaps these banks aren't too dissimilar from military contractors after all!)

Let's face it: In any economic bubble, greed tends to overtake everyone. Speculative consumers who decided to gamble on the housing-market casino definitely share part of the blame for the ensuing disaster. But the banks certainly played a huge part in paving our road to economic hell -- with or without good intentions.

Some stocks are worth shunning
I decided a long time ago that the big banks occupied my own personal "shun list." I'd rather search for good, ethical, well-run companies. I was never convinced the big banks' problems were really fixed, even with a massive government assist. And I fear they'll still sell us all down the river the first chance they get. My heartfelt wish in 2008 was to see them fail. The way a lot of their executives whined and grubbed and finagled for bonuses they didn't really deserve made me ill, quite frankly.

Many investors aren't interested in socially responsible investing. Still, I hope they'll at least give a few minutes' thought to what really motivates the companies with which they align their financial interests. After the last couple of years, I'd say everyone could stand to do a little stock-related soul-searching.

Do the big banks deserve the vice stock status or not? Bare your soul in the comment box below.

Check back at every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy. Try any of our Foolish newsletters free for 30 days.

Read/Post Comments (11) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 30, 2010, at 7:39 PM, ViolaLeeBlues wrote:

    I have no moral qualm with cigarette or alcohol producers. I have been looking into stocks in these sectors. Heck if they had cocaine, marijuana, heroine, LSD corporations I'd be interested in those as well. Come to think of it at one point there was a pharmeceutical corporation that produced LSD. I doubt they made much money off of it though.

    But there are Corporations that no matter how profitable to invest in I just wouldn't own. Definitely not the banks involved in the recent economic crisis. I always though it was kinda grimey how they make so much money off of fees (mostly overdraft I'm guessing) which are charged to the people who probably can least afford them. And they charge monthly fees on accounts to people who can't carry minimum balances and whatnot. If have money everythings free and they pay you. If you don't have money they charge you for everything and no interest.

    I definitely would never own Monsanto. Whether they are genetically engineering corn & soybeans to be resistant to their herbicides and pesticides which increases the runoff of these chemicals into the streams and rivers or dumping dioxin on the roads of their company town or contracting with the U.S. Government to spray millions of tons of glyphosate with surfactants over millions of acres of rainforest in colombia I just don't like what they do. There are to many profitable businesses that are interesting and that I am enthusiastic about what they do to bother with ones that I find distasteful just because I might make money on them. IMHO

  • Report this Comment On July 30, 2010, at 8:29 PM, TMFLomax wrote:

    Thanks for commenting, ViolaLeeBlues. I feel very similarly to you (I also don't have much of a problem with the alcohol and tobacco companies although I certainly understand why some people do and put them in the "sin stock" category), and Monsanto is definitely one of those companies I personally wouldn't care to own either. It's true, there are plenty of interesting, profitable businesses out there to look into instead of the ones that one might find distasteful. Thanks for sharing your thoughts!

  • Report this Comment On July 31, 2010, at 3:25 AM, longtermgrowth09 wrote:

    Thats fine, i hate banks. i think the value or growth dilemma can be taken another vision. I want a stock that have socially responsibles practices, and be a growing corporation with sustainable and growing dividends. the socially responsible part avoid eventual lawsuits. anything that harm the people or environment will be eventually destroyed. so i will rather choose pepsico rather than altria. dont you think the same alyce? i really enjoy your articles.

  • Report this Comment On July 31, 2010, at 11:20 AM, TMFLomax wrote:

    Thanks longtermgrowth09, I do agree! I do think corporate actions that are socially irresponsible or ethically challenged will eventually face problems down the road, in the form of lawsuits, customer desertion, and other negative effects that will be negative influences for shareholder value in the long term. And thanks for reading my articles!

  • Report this Comment On August 02, 2010, at 9:35 AM, catoismymotor wrote:


    Well said! I could not agree with you more. I've always favored casino stocks over banks because the casino will openly tell you they are out to seduce you and take your money.


  • Report this Comment On August 02, 2010, at 9:54 AM, TMFLomax wrote:

    Thank you Cato! And awesome comment about the casino stocks. Yeah, they're pretty out in the open about what they're all about, for sure! At least you know the nature of what you're dealing with, haha.

  • Report this Comment On August 02, 2010, at 3:16 PM, mpendragon wrote:

    Altria has an impressive dividend yield but smoking is being banned and taxed in more places all of the time. Wealthy people don't tend to smoke and while smokers tend to be highly brand loyal the expense may drive them to cheaper brands or ultimately away from smoking in the long run and that will hurt Altria's margins going forward.

    Their best bet is in the developing world where smoking is still fashionable but they tend to consume cheaper knock-offs of the big brands.

    My bet is on high dividends but modest growth going forward over the next several years.

  • Report this Comment On August 02, 2010, at 6:51 PM, philkek wrote:

    Thanks MF for good article on more "sins" to avoid. I had not thought of banks as being "sin" stocks. I used to own BAC, C, and MO years ago and made good honest gains on them all. Bought them for dividends on advice of MF. Have been considering buying more bank stocks because greed is tempting me. Decisions, decisions! Fear vs greed. You have me thinking. Stocks related to war, cancer, poverty, crooked politics, etc. Many profitable stocks out there... waiting. Better Business Bureau warns fools to investigate BEFORE you invest. Fool on for profits.

  • Report this Comment On August 02, 2010, at 11:48 PM, longtermgrowth09 wrote:

    Alyce, thanks for the comment. revewing your colgate pick in caps, even after the recent plunge, i think its the very best blue chip stock out there cause its the most reccesion resistant product and with a strong brand and even better i think its the oldest american company since 1800,even older than coca cola. or do you know another better one? because after studying all the possibilities among american companies colgate remains very atractive cause its not tied to economic growth like coke in emerging markets and its cappable to growth in every environment, also it doesnt have the risk in other recession sectors like pharma(an industry that dont work cause of clinical trials and regulation and exiration of patents). colgate PE is among the highest into consumer good companies like Procter, coke, jhonson, signaling that the market is paying a premium for it because of the higher quality, colgate is the best, alyce. dont you think that in anticipation to low to nothing economic growth going forward ?

  • Report this Comment On August 03, 2010, at 11:55 AM, lemoneater wrote:

    Avoiding "sin" is good, but to take socially responsible investing even further, I like to invest in companies providing products to greatly improve the quality of life. I just placed an order to add to my position in Natus Medical. 3M also fits into my category of a company that improves the quality of life in multitude of ways that I often take for granted.

  • Report this Comment On August 03, 2010, at 7:44 PM, midnightmoney wrote:


    Thanks for the article. I have been thinking about what it means to act "ethically" and whether there is a difference between acting and thinking ethically. You say you wouldn't invest in a cigarette or bank stock yet your employer yesterday or the day before (11 oclock stock) encouraged us to buy one of the former in Altria. Does this mean that you, as a member of the MF staff, also condone--if not recommend--the pick? Did you protest the choice when it came up at your editorial meeting? Does ACTING ethically mean that you should have, or do you draw a line between acting ethically and investing ethically? What would you do if one of the other editors wanted to pitch Goldman sachs? More importantly, what would you do if the MF board decided to pitch it on the 11 oclock stocks? (Sorry, I'm sure you see that I have no idea how decisions are made at the mf, but please accept the assumption...)

    As a former Marxist and still passionate supporter of labour unions I have struggled mightily with what to do with what little money I have and grow old with something more than a bike and a laptop and the world's best partner. How does one reconcile one's ideals with the need to make money in a dirty dirty world? At what point does the individual's needs (modest or outlandish as they may be) supercede a moral code and result in the transgressing of that code? Where does that individual from then on stand? In good company, I'd say, and tantalizingly conflicted.

    Morality consists in action, not the lack thereof. Not investing in "sin" stocks does not make a person ethically copasetic any more than not picking people off with a shotgun next to the highway, for example, means a person is good. The banks will shine without you, Altria will smoulder on, and mcdonalds will allow their franchisees to go on bending workers over to the tune of $2 an hour here in Poland until the word kielbasa sounds more like "kill bossa", or worse, until it sounds like "supersize me". And indeed writing an article sure not to ruffle anyone's feathers or really open up the guts on the issue doesn't cut muster as far as ethics go. Loads of people wished to see the banks eviscerated. And so what??? If you want to be good, go out and do something good. But please don't say youre ethically opposed to ("it's a no-brainer") a stock when your very own employer has just held one out and in pitching it so seductively went so far as to strike the match.

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