Investing into "Sin" Stocks

In a recent article (Cigarettes, Booze, Gambling...and Economic Moats), Morningstar columnist has made an interesting connection between "sin" companies, such as cigarette, alcohol beverage, and gambling outfits, and government's stake in their well-being.

The argument is that although government wants to curb the use of these companies' products, it's making out like a bandit from the tax revenue that comes from the sales of these products. The amount of this tax revenue is directly correlated with the revenue of these "sin" companies.

Another great point made in the article is that all the increased regulation has made it nearly impossible for any new companies to enter the market. This makes for an oligopoly virtually guaranteed and protected by the government.

So, all these companies have huge wide moats preventing competitors from stealing their market share, products that will have a consistently increasing demand in the foreseeable future, and huge margins. What is there not to like? Well, there is of course that whole notion that these companies are detrimental to the society as a whole, but for people who can detach investment aspect from the social aspect, there are potentially significant returns that can be made from some of these companies.

Now, these companies' effect on the society is certainly questionable to say the least, but for those who want to keep their options open, here is a list of stocks mentioned in the article and can be viewed as high-potential "sin" companies:

• Altria (MO)
• Reynold American (RAI)
  
• Carolina Group (CG)
  
• UST (UST)
  
• Diageo (DEO)
  
• Anheuser-Busch (BUD)
  
• Molson Coors (TAP)
  
• AmBev (ABV)
  
• Femsa (FMX)
  
• International Gaming Technology (IGT)

Again, not all "sin" stocks are made equal. These are simply companies worth taking a hard look at, research each one individually before committing any of your money to any one of them.