Tobacco Stocks Are Smokin’ Hot
The Dynamic Wealth Report
December 6, 2011
by Corey Williams, Editor
The holiday season is upon us…
I spent the past weekend with my family getting into the spirit of the
holiday season. For the first time ever, I have a real Christmas tree in
my house. It’s a nice change of pace from the artificial trees we
usually have.
Our beautiful Noble Fir came from the tree lot at the local Home Depot
(HD). I’ve got to tell ya, it’s quite an experience picking out a tree
with two boys under the age of six. Their excitement certainly made the
whole thing worthwhile.
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After our tree was lit and home decorated, we took the boys around the
city to check out a few of the Christmas light displays. On our way
home, my five year old noticed a well lit neon sign glowing on one of the
buildings we passed. He wanted to know what those “Christmas lights”
said.
Well, the lights weren’t Christmas lights at all. It was a sign
proclaiming “Topless Dancers” at a gentleman’s club right off the
freeway.
I couldn’t help but laugh… And I agreed they were indeed nice Christmas
lights. (I wasn’t about to explain that one… thank goodness they can’t
read yet!)
It was innocent but it goes to show you vice can’t be avoided in today’s
world. It’s everywhere you go.
What’s more, as an investor, you shouldn’t want to avoid vice.
Let me explain…
Stocks involved with activities some consider to be unethical or immoral
are known as vice or sin stocks. They typically include companies
dealing with weapons, tobacco, alcohol, and sex-related products. But
despite their lack of moral virtue, sin stocks have been great
investments.
In fact, tobacco stocks are (excuse the pun) smokin’ hot this year.
The three companies who dominate the tobacco business are Altria (MO),
Philip Morris (PM), and Lorillard (LO).
So far this year, MO is up a solid 15%, PM has gained 29%, and LO has
shot up more than 35%. And they’ve made the gains while the S&P 500 has
struggled to post a 1% loss for the year.
And here’s the best part…
Tobacco stocks also pay healthy dividends. Right now, Altria has a 5.77%
annual dividend yield, Philip Morris pays out at 4.08%, and Lorillard’s
is 4.73%. Try getting returns like that from a CD or a money market…
you’d be lucky to get 1% these days.
And I’m not the only one who thinks investing in tobacco stocks is a
good idea. Money managers, like Joel Greenblatt and David Winters, have
been building huge positions in PM, LO, and MO this year.
They’re putting their money into these stocks for good reasons. These
are not evil people who want to spread cancer.
Nope. They’re investing in tobacco stocks because the business is stable
and predictable. And finding an investment with stability and
predictability in today’s market is tough to do.
Here’s the bottom line…
No matter how you feel about the products tobacco companies make, you
can’t dispute the gains these stocks are making.
Take a look at adding sin stocks to your portfolio. They may not
represent behavior you condone, but they can be great investments during uncertain economic times.
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