With the prospect of an incoming recession a non-zero probability event, investors may want to consider sin stocks to buy. Put another way, these publicly traded enterprises appeal to certain base-level desires of the consumer economy. Fascinatingly, academic research shows that increased stress or another stymieing factor against mental resources can make it likelier for people to give in to certain impulses, whatever they might be. Putting two and two together, a recession could easily cause stress, thus catalyzing the demand for sin stocks to buy.
As well, we don’t need a full-blown recession to see “vice” activities rise. With stubbornly high inflation, mass layoffs, and geopolitical flashpoints on Americans’ minds, some folks have every reason to take the edge off. Therefore, the below sin stocks to buy may see a rise in market value.
McDonald’s (MCD)
According to the Mayo Clinic, emotional eating represents a mechanism “to suppress or soothe negative emotions, such as stress, anger, fear, boredom, sadness, and loneliness.” Major life events, perhaps a recession or just stubbornly high inflation might trigger emotional eating. Although it’s probably a coincidence, shares of McDonald’s (NYSE:MCD) look quite strong so far this year.
Since the Jan. opener, MCD gained 12% of equity value, making it an enticing play among sin stocks. However, more realistically, the market responded to strong fundamental news. According to The Wall Street Journal, McDonald’s CEO stated that its restaurant revamp is paying off. As evidence, net income jumped 63% in the first quarter of 2023. Cynically, though, MCD should still be one of the sin stocks to buy. As great of a business as it runs, it’s not exactly a champion of consumer health. That said, it is a champion of portfolio health. According to TipRanks, MCD ranks as a strong buy with a $317.79 upside price target.
Coca-Cola (KO)
According to the East Bentleigh Dental Group, soft drinks “contain large quantities of sugar which, when consumed, causes a ‘rush’ that is extremely addictive and leads to even bigger cravings.” Unfortunately, medical research published by the National Institutes of Health reports that sugar-sweetened beverages increase the risk of cardiometabolic disease. Of course, Coca-Cola (NYSE:KO) represents public enemy number one in this regard.
Awkwardly, though, KO represents one of the best sin stocks to buy. While KO hasn’t impressed on a year-to-date basis (up only 2%), it’s shown considerable momentum since late March. Financially, Coca-Cola’s strength lies in its consistent profitability. Over the past decade, it’s posted 10 years of net income. As well, its trailing-year net margin stands at 29.36%, above 96.83% of companies listed in the restaurant industry.
Finally, Wall Street analysts peg KO as a consensus strong buy. This assessment breaks down as 13 buys, three holds, and significantly zero sell ratings. Also, the experts forecast an upside price target of $69.44.
Monster Beverage (MNST)
With Monster Beverage (NASDAQ:MNST), the narrative of its ranking among sin stocks to buy runs similar to Coca-Cola above. While Monster does offer non-sugar beverages, plenty of its products offer the sweet stuff, presenting broader health concerns. However, as an energy drink, Monster also caters to an addiction-like profile. As the Cleveland Clinic states, the body can develop a tolerance regarding caffeine intake.
Further, caffeine produces mild, subjective psychostimulant effects, further incentivizing its use. Should a recession materialize, more people would likely need an extra dosing of caffeine to spark these feel-good emotions. Therefore, MSNT easily ranks among the sin stocks to buy. Further, Monster enjoys stout financials. For example, it carries zero debt, affording incredible flexibility at this juncture. In addition, its Altman Z-Score pings at 28.36, indicating high fiscal stability and an extremely low risk of bankruptcy.
Lastly, covering analysts peg MNST as a consensus moderate buy. However, at a price target of $60, the upside potential might be limited.
Anheuser-Busch (BUD)
With Anheuser-Busch (NYSE:BUD), we get a twofer if you’re looking specifically for sin stocks to buy. First, on a less-controversial note, research shows that stress or the existence of negative impulses may incentivize alcohol consumption. At scale, it’s possible that recessionary forces may contribute to higher rates of imbibing, cynically boosting BUD stock.
Now, for the second and more controversial component, many conservative social commentators took exception to Anheuser-Busch’s partnership with Dylan Mulvaney, known for broadcasting her gender transition on social media. CBS notes that sales of Bud Light (one of Anheuser-Busch’s brands) have continued to fall weeks after the Mulvaney fallout.
Looking at the matter purely agnostically, the controversy might be a discounted opportunity for shrewd investors. Here’s my thinking: if a recession hits, do you think people will care about this silly matter? Probably not, folks would just want to get drunk. And that’s exactly what Bud Light offers, a cheap way to imbibe. Thus, BUD’s one of the sin stocks to buy should the economy struggle.
RCI Hospitality (RICK)
An obvious entry for sin stocks to buy, RCI Hospitality (NASDAQ:RICK) of course operates in the hospitality industry. However, it’s a type of hospitality that you don’t want to patronize online unless you want to risk an encounter with HR. Certainly, it’s a hospitality that you don’t want to charge on your company credit card. I hope you get my drift.
Despite the controversial nature of RICK, it remains a top idea for sin stocks to buy. Back in 2013, CNBC published an article that mentioned business for the hospitality industry thrived. On a more psychological level, these institutions may help provide an endorphin rush to their clients. Logically, a painful recession may cause folks to get down on themselves. RCI Hospitality helps pick them back up.
To be fair, it’s a tricky idea. Since the beginning of this year, RICK fell slightly more than 20% in equity value. On the positive side, though, RICK appears to be undervalued. Right now, the market prices shares at a forward multiple of 13.68. As a discount to projected earnings, RCI ranks better than 79.63% of companies listed in the restaurant industry. Yeah, I suppose you can call it a restaurant.
Paramount Global (PARA)
A terribly risky idea due to deeply disappointing earnings, Paramount Global (NASDAQ:PARA) may also suffer lingering damage from the Hollywood writers’ strike, should the protest last longer than anticipated. In other words, PARA represents one of the most contrarian ideas among sin stocks to buy. Nevertheless, if you like attempting to catch falling knives, Paramount could be interesting.
Fundamentally, the entertainment studio features a long list of horror films on its streaming service Paramount+. As well, the company carries the iconic Friday the 13th franchise starring everyone’s favorite anti-hero, Jason Voorhees. According to the Washington Post, “[o]ne brain imaging study found that watching horror movies activates threat-response brain regions such as the amygdala, prefrontal cortex, and insula as if the danger were real. After this rush, many people experience an elevated mood.”
It’s also possible that people can artificially generate feelings of schadenfreude when watching these films: just the perfect distraction (for some) during a recessionary cycle. Therefore, PARA might be one of the sin stocks for contrarian gamblers.
Innovative Industrial Properties (IIPR)
Generally speaking, people seek substances such as cannabis to mellow out and ease life’s stresses. Therefore, a recession could be a cynically wonderful catalyst for Innovative Industrial Properties (NYSE:IIPR). To be clear, Innovative Industrial is not a direct participant in the botanical sector. Rather, it’s a leading provider of real estate capital for the regulated cannabis industry, per its website.
In full disclosure, only investors carrying iron stomachs should take a crack at IIPR. Since the Jan. opener, shares gave up nearly 29% of equity value. And in the trailing one-year period, IIPR slipped more than 47%. However, it’s possible that IIPR hit a bottom on April 26.
Financially, what makes Innovative Industrial so appealing is the value proposition. According to Gurufocus, the market prices IIPR at a forward multiple of 13.36. As a discount to projected earnings, IIPR ranks better than 67.43% of companies listed in the REITs industry. Also, IIPR trades at 8.2 times free cash flow. In contrast, the sector median stands at 13.03 times. So, if you’re looking for a discount with your vice trade, IIPR could be it.
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.