It is no secret people are cutting back spending on daily expenses ranging from coffee to fast food, entertainment, and more. However, there are just some vices that people will spend on no matter how bad the economy gets.
Namely, people are inclined to spend on cigarettes, alcohol, marijuana, and junk food. Even if the economy ends up mired in a lengthy economic trough, vice stocks should hold firm, helping investors grow their nest egg all the more.
Here is a quick look at four vice stocks every investor should consider buying: Phillip Morris International (PM), Constellation Brands (STZ), Boston Beer Company (SAM), and Craft Brew Alliance (BREW).
Phillip Morris International (PM)
Smokers are willing to pay big bucks for their nicotine, even during a lengthy recession. After all, a pack of cigarettes sells for around $10 to $15 in New York State, and it hasn’t stopped smokers from lighting up on an hourly basis. PM is the perfect stock to profit from consumers’ willingness to pay through the nose for their nicotine fix. The tobacco giant makes regular cigarettes and reduced-risk products such as its IQOS device for heating tobacco. Such reduced risk products comprise nearly one-quarter of PM’s quarterly revenues.
Take a look at PM’s POWR Ratings, and you will find it has “B” grades in the Peer Grade, Buy & Hold Grade, and Trade Grade components. PM is ranked second out of nine stocks in the Tobacco industry. The average analyst price target for PM is $94.43, meaning the stock could have more than 31% upside remaining. PM also has a fairly low forward P/E ratio of 14.44. PM has steadily moved back toward its pre-COVID trading level thanks to strong third-quarter results. The company’s non-GAAP operating income was up about 3% for the quarter, hitting $3.2 billion.
PM operates in 180 countries globally, meaning a domestic recession won’t spell doom for the stock. Add in the fact that shipments of the aforementioned IQOS device have increased by more than 33% in the first half of 2020, and you have even more reason to buy PM. The icing on the cake is PM’s 6.5% dividend.
Constellation Brands (STZ)
STZ makes and markets alcoholic drinks ranging from beer to wine and spirits. STZ’s POWR Ratings are highlighted by a “B” Industry Rank. STZ is ranked 13th out of 29 stocks in the Beverages industry.
Take a look at the average analyst price target for STZ, and you will find the expectations are quite bullish: a $209.33 price target, representing a possible 20% upside.
STZ’s beer shipment volume is up 6% on the year. Furthermore, STZ’s investment in cannabis-infused beverages through Canopy Growth (CGC) should help the stock move even higher, especially if cannabis is legalized at the federal level in the next year or two.
Boston Beer Company (SAM)
SAM has been an unstoppable stock in 2020. SAM’s alcoholic beverages are selling better than the competition’s mainly because its hard seltzer offering is quite popular. SAM has “A” grades in the Peer Grade, Trade Grade, and Buy & Hold Grade POWR Rating components. SAM is ranked second out of 29 stocks in the Beverages industry.
All in all, SAM’s revenue is up more than 30% from the year prior. SAM’s net income is up more than 80%. SAM may move toward $1,200 as the pandemic worsens, and people resort to drinking at home rather than in bars, clubs, and restaurants.
Craft Brew Alliance (BREW)
BREW makes, markets, and sells craft beer throughout the country. You might have enjoyed a BREW beverage under the moniker of Kona Brewing, Redhook, or Widmer Brothers.
Check out BREW’s POWR Ratings, and you will find “A” grades in the Buy & Hold Grade, Peer Grade, and Trade Grade components. The potential takeover by Anheuser-Busch is undoubtedly a good thing for BREW, yet there is a question as to whether the antitrust analysis will prevent the acquisition.
It is important to note BREW recently acquired several regional breweries with growing customer bases. Even if regulators call off the Anheuser-Busch deal, BREW still has a bright future.
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PM shares fell $0.83 (-1.16%) in premarket trading Wednesday. Year-to-date, PM has declined -12.89%, versus a 4.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More…
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