Vices seem to have a way of being present through economic good times and bad, and that dynamic can make sin stocks that serve those vices attractive for long-term investors.
Looking over the market in 2017, the sin stock landscape has changed from previous years. The alcohol business has consolidated, casino companies are making very little money outside of Asia, and smoking seems to be dying a slow death. Still, there are a few attractive sin stocks on the market.
Riding the craft brewing trend
Consolidation in the beer business has left AB InBev (NYSE:BUD) and Molson Coors Brewing Co. (NYSE:TAP) as the two power players in the industry. And that will allow both to push their weight around with suppliers and distributors. But they're both extremely expensive with AB InBev trading at 56 times earnings and Molson Coors going for 36 times earnings.
The better bet in beer right now is Boston Beer Co. Inc. (NYSE:SAM), which trades for 27 times earnings and is riding a long-term growth in the craft beer business. In 2015, overall beer sales fell 0.2% in the U.S. but craft beer was up 12.8% and exports of craft beer jumped 16.3%.
Boston Beer is no longer a small brewer, but it still holds some of the craft brewing cachet consumers want. And with a better valuation than bigger buyers, it's a solid sin stock to own in 2017.
Another very stable business is making spirits, which is the specialty of Brown-Forman Corporation (NYSE:BF-A) and Diageo plc (NYSE:DEO). Brown-Forman owns such brands as Jack Daniels, Woodford Reserve, and GlenDronachi while Diageo has Johnnie Walker, Smirnoff, and Crown Royal among its many brands.
You can see below that despite not being a growth business, the spirits business is very stable and comes with high margins.
Dividend yields of 1.6% from Brown-Forman and 3.6% from Diageo are attractive as well. And with cash consistently coming in from sales of a diverse set of spirits these are dividends to count on long term.
The best stocks in gaming
Casino stocks today are struggling to decide whether the future is getting brighter or more risky. After two years of gaming declines, Macau is now on the rise again, but a new crackdown on ATM withdrawals by Chinese citizens has investors worried. In the U.S., the gaming market isn't growing very much, but Las Vegas has become a place of stability for gaming operators.
It's through that lens that MGM Resorts International (NYSE:MGM) and Las Vegas Sands Corp. (NYSE:LVS) provide the best opportunity for investors. Las Vegas Sands has an incredibly diverse business in Las Vegas, Macau, and Singapore, which throws off billions of dollars in cash flow each year. The most important use of that cash flow today is through paying a dividend, which stands at a 5.2% yield today.
MGM Resorts is the steady player in gaming, operating primarily in Las Vegas. I recently highlighted that less exposure to Macau and a declining debt load have made MGM a top-performing stock for investors over the past two years. And with Las Vegas continuing to grow at a slow and steady pace, MGM will be a great stock for 2017 as well.