Following a rough year, investors seeking positive returns might want to consider going a bit controversial with sin stocks. Understandably, with the political winds turning progressive, people nowadays turn a stink eye toward cynicism. Unfortunately, with few reliable opportunities available, the vice trades tend to be incredibly attractive.
Given the horrible events that occurred since the new normal, I’m not going to discuss certain topics on this list of sin stocks to buy: in particular, firearms and private-prison institutions. So, don’t worry – these ideas shouldn’t offend most people’s sensibilities.
At the same time, they push the needle a bit regarding the morality angle. If you don’t want to know, you don’t have to. However, for those thinking about enticing opportunities, these are the tempting sin stocks to buy for promising profits.
RCI Hospitality (RICK)
Frankly, no discussion about sin stocks to buy rings complete without mentioning RCI Hospitality (NASDAQ:RICK). A company with a mundane brand identity, RCI specializes in exactly what it says, hospitality. It’s just that these folks take hospitality to a far greater magnitude. I’m not entirely sure I can say much more without offending the Google SEO overlords.
If you still don’t know what I’m talking about, let’s put it this way: your employer will not appreciate you researching RCI Hospitality on company time. In fact, you might get a little trip to HR so don’t do it. However, when you’re in the privacy of your own home, you can read CNBC’s take on the industry. It noted that this brand of hospitality boomed during the Great Recession.
Hospitality also pays, both for the company itself and the “hospitality providers.” That’s why Wall Street analysts peg RICK as a consensus moderate buy. Also, check out the average price target which stands at $145, implying 55% upside potential. With such a confidence forecast, RICK represents one of the sin stocks to buy.
Philip Morris (PM)
Although celebrated in popular culture back in the good ole days, big tobacco these days represents a major no-no. On paper, then, the inclusion of Philip Morris (NYSE:PM) on this list of sin stocks to buy might seem strange. Indeed, high-level data indicates that global smoking rates declined since 1990. Fundamentally, this indicates a dwindling total addressable market, which doesn’t natively support Philip Morris.
However, it’s also important to point out that its “digital” counterpart – the e-cigarette/vaporizer market – stands to grow significantly. According to Grand View Research, the global e-cigarette/vape market reached a valuation of $22.45 billion in 2022. By 2030, analysts there project a sector revenue of $182.84 billion. That translates to a hefty compound annual growth rate (CAGR) of 30.6%.
Like it or not, that’s wonderful news for Philip Morris. As you may know, the company also specializes in e-cigarette products. Even better, Wall Street analysts peg PM as a consensus moderate buy. Their average price target implies an upside of over 8%. Combined with its near-5% forward yield, PM represents one of the sin stocks to buy.
An American icon, McDonald’s (NYSE:MCD) symbolizes more than just a fast-food eatery. It’s really an icon of western-style capitalism. Essentially, if you have a McDonald’s in your country, your nation has a good chance of going places. Look at it this way. Only a few countries – such as North Korea and now Russia – don’t have McDonald’s. Coincidence? I think not.
At the same time, McDonald’s represents one of the sin stocks to buy. No matter how many times the Golden Arches tries to spin its products, they’re not healthy for you. Like, not at all. Loaded with simple carbohydrates, eating McDonald’s every day may lead to serious health problems. You don’t get the same warning from frequent consumption of say broccoli.
Nevertheless, McDonald’s is crazy addictive. That helps to explain why operationally, its long-term revenue trend and its profitability metrics over the trailing year rank above their sector median values. Another factor benefiting MCD as one of the sin stocks to buy? Wall Street analysts support it, pegging MCD as a consensus moderate buy.
Constellation Brands (STZ)
It doesn’t take much to understand why Constellation Brands (NYSE:STZ) ranks among the sin stocks to buy. As a producer and marketer of beer, wine, and spirits, Constellation helps liven the mood, if you will. However, investors weren’t impressed with its most recent earnings report, posting mixed results. Nevertheless, contrarians viewed STZ as a buying opportunity and I concur.
Financially, Constellation brings solid value for prospective investors. Per Gurufocus.com, the market prices STZ at a forward multiple of nearly 19. As a discount to forward earnings, STZ ranks better than nearly 64% of the competition.
Admittedly, Constellation could use work in other areas of its financials, such as the balance sheet and certain operational stats. Here’s the cynical deal, though. It’s possible that rising pressures from contemporary economic conditions – especially mass layoffs – may contribute to greater demand. To be sure, it’s a cynical narrative. However, it’s also one that Wall Street apparently believes in given STZ’s consensus strong buy assessment. As well, analysts’ price target implies an upside potential of nearly 12%.
Innovative Industrial Properties (IIPR)
Many years ago, proposing the idea of Innovative Industrial Properties (NYSE:IIPR) may have resulted in pitchforks. Today, the real estate capital provider of the regulated “botanical” industry hardly raises eyebrows. Therefore, what you might consider sin stocks to buy presently could be rather mundane a decade from now.
Still, the green happy plant represents serious controversies, in part because the federal government considers it a Schedule I drug. As well, various social and spiritual advocacy groups label the plant as a gateway for other questionable behaviors. The beauty of Innovative Industrial is that it doesn’t grow the plant itself. Rather, it helps businesses in legitimate trade find the capital they need to survive and thrive.
Without holding back anything, IIPR presents market risks, given its trailing-year loss of 50%. Financially, though, Innovative enjoys a decently stable balance sheet and blisteringly strong revenue. And priced against free cash flow, IIPR represents an undervalued proposition among sin stocks to buy. Even better, Wall Street analysts peg IIPR as a consensus strong buy. What’s more, their average price target implies an upside of over 58%.
FAT Brands (FAT)
With a name like FAT Brands (NASDAQ:FAT), you just know that the company will end up on a list of sin stocks to buy. Don’t expect the company to change its name to Full-Bodied Brands or anything of the sort. Known for its iconic (and many would say classic) Fatburger fast-casual restaurant chain, the company gives what its customers want: a juicy (and addictive) burger without any judgment.
Still, it ranks among the sin stocks to buy. Last year, the family behind the chain fell under allegations of fraud and money laundering. Sure enough, in the trailing year, the FAT stock dropped over 33% in equity value. Still, in 2023 thus far, FAT managed to gain a stratospheric 34%. So, it’s a tale of two clashing views. On the financial end, Fat Brands represents an absolute growth monster. However, Gurufocus.com warns that it’s a possible value trap. Again, we have clashing viewpoints.
What does Wall Street believe, then? Currently, only one analyst covers Fat Brands, rating it a buy. However, the expert forecasts the stock moving up to $25, implying 252% upside potential. If so, FAT would easily be one of the sin stocks to buy.
Compass Pathways (CMPS)
Depending on your definition of sin stocks to buy, Compass Pathways (NASDAQ:CMPS) might not register as particularly controversial. On the surface, Compass specializes in psilocybin therapy; that is, combining the pharmacological effects of psilocybin, a psychoactive substance, with psychological support. Given that psilocybin represents a hallucinogen – and also that we’re struggling against a national substance abuse crisis – Compass might seem incredibly problematic.
However, the company’s main goal doesn’t focus on the recreational aspect of psilocybin, which would be highly illegal. Rather, it aims to address the other national crisis of mental health. Given the dramatic rise in mental illnesses in the U.S., this country needs solutions. It’s possible (but not guaranteed) that psychoactive therapeutics under a controlled environment may help.
Understandably, CMPS carries tremendous risks. At the same time, Wall Street analysts love Compass, pegging shares a unanimous strong buy. Further, their average price target stands at $56, implying an upside potential of nearly 445%.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.