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.
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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