Mixed Day for Sin Stocks: Brown-Forman Pops While Reynolds American and Lorillard Fall

Today's movers and shakers in the darker side of the world of business.

Mar 5, 2014 at 9:00PM
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Sin stocks generate a lot of strong opinions because of the industries they operate in: alcohol, tobacco, guns, and casinos, to name a few. Some people would even include defense contractors in their definition of sin stocks.

Businesses that operate in this part of the market are often considered recession-proof and therefore make for safe and profitable investments. That's true to a point, but these businesses are still just businesses, and no business can guarantee that investors will never lose money.

Let's look at two sin stocks that fell today, as well as one that put in a good performance. First up is Brown-Forman (NYSE:BF-B). The alcohol maker best known for its Jack Daniel's brand rose 3.69% following a strong quarterly earnings report this morning. The company posted revenue of $1.08 billion, and earnings per share of $0.82 easily beat last year's $0.73 and Wall Street expectations of $0.75. Sales rose 5% from a year earlier and met expectations. Management looks to be doing a great job, with costs under control and margins growing by 90 basis points. Current shareholders have little to worry about right now, as the company should continue to produce solid returns and will probably continue to grow if it isn't acquired.  

Two sinful losers today were cigarette makers Reynolds American (NYSE:RAI), down 3.57%, and Lorillard (NYSE:LO), down 3.22%. Let's look at a chart of their recent share performance.

LO Chart

LO data by YCharts

That big spike hit as news came out that the companies have been in merger discussions over the past few weeks. But now things are cooling back off. Reynolds and Lorillard are the second and third largest U.S. cigarette companies, and investors are starting to question whether regulators would approve the deal. Furthermore, even though a merger would help both companies with efficiencies and cost savings, U.S. cigarette volumes are still on the decline, and that trend doesn't look to be changing anytime soon.  

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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