Cash in… on sin! VERY un-woke shares that might earn you a packet

Hollywood star Mae West once said: ‘It ain’t no sin if you crack a few laws now and then, just so long as you don’t break any.’ But ideas of what constitutes a sin have changed since her day.

When West was breaking box office records in the 1930s, smoking and drinking were almost de rigueur. Driving was a pleasure and gas-guzzling motors were a source of pride. Even gambling was in fashion, with Las Vegas on the make as a gaming venue and fun spot.

Today, some investors take a dim view of such activities. 

Listed companies involved in booze, betting, fags and fuel are described in the investment world as ‘sin stocks’, along with arms firms and defence companies.

Not that long ago, it seemed as if these businesses were hurtling towards their sell-by date. Green investing was all the rage and ethically minded savers were turning their backs on dozens of companies that were deemed damaging to our health and our green and pleasant land.

The cost-of-living squeeze changed that mindset, along with Putin’s war on Ukraine which shifted attitudes towards defence stocks. Investors are looking with fresh eyes at making money from human vices, and from the efforts to keep the world safe from all-out war. 

So does sin pay on the stock market or should we seek our rewards in more virtuous industries?

Odds on: Gambling firms

Gambling was once described as: ‘The sure way of getting nothing for something.’

From a stock market perspective, however, Paddy Power and Betfair owner Flutter Entertainment has been a rip-roaring success. 

Based in Dublin, the group has become the world’s largest sports betting and online gaming operator, with around 14 million people parting with hard-earned cash every single month in the hope of winning against the odds.

This year alone, Flutter is expected to deliver sales of $14 billion (£10.7 billion) and boss Peter Jackson is aiming for $21 billion by 2027, with profits soaring along the way. 

Such big numbers make gambling firms an easy target. 

Rachel Reeves is thought to be mulling a £3 billion tax raid on the industry at her forthcoming Budget and several American states are looking at tighter regulation and tax increases.

Speculation hit Flutter shares on Monday but the company is still a top performing sinner, quadrupling in price over the past decade, with several dividend payments thrown in for good measure. 

Even after dipping earlier this week, Flutter shares have soared more than 30 per cent over the past year and now cost almost £175 apiece.

Not every gambling stock is a winner though. Shares in rival Entain have slumped from £21 to little more than £7 in the past three years, as the group behind Ladbrokes and Coral has battled a series of setbacks, including allegations of bribery in Turkey, culminating in a £615 million payment deal. 

Entain has since appointed fresh faces to the board and recent performance has been encouraging. 

But large investors are unhappy with the company and a lawsuit was filed against the firm, claiming compensation for the tumbling share price. 

On a ten-year basis, Entain still beats the wider market but, even if gamblers fancy the odds on this one, cautious types would almost certainly prefer to steer clear.

Safe and secure: Backing defence stocks

Nothing illustrates investors’ changing attitudes more than the defence sector. Not that long ago, defence stocks were associated with warmongering, and the sale of arms was widely considered a dirty business. 

Russia’s invasion of Ukraine turned that type of thinking on its head. Today, firms such as BAE Systems, Qinetiq and Cohort are recognised as providing a vital service, keeping innocent civilians safe from harm. 

BAE is the giant of the trio, valued on the stock market at almost £40 billion. Cohort is the baby with a valuation of less than £400 million.

Qinetiq, with a value of just over £2.5 billion, is a slightly different beast. Spun out of the Ministry of Defence, the firm is one for the geeks, focused on research and development, testing and training, cyber security and intelligence, rather than vehicles and weaponry. 

Shares in all three have soared however, and there should be more to come. 

Countries the world over are upping defence budgets in response to growing turmoil and tension and Qinetiq issued a confident trading update only this week, citing ‘a heightened threat environment’.

BAE shares are up 137 per cent since the start of 2022 and Qinetiq has seen its shares rise by 70 per cent over the same period. As for Cohort, its shares have increased in value by 58 per cent this year alone. 

Powering on: Energy giants BP and Shell

Oil, gas and coal are responsible for more than 80 per cent of greenhouse gas emissions, the consequences of which stretch from here to Antarctica. 

As giants in the oil and gas world, BP and Shell have long battled with green lobbyists. 

Desperately trying to burnish environmental credentials, BP adopted the logo Beyond Petroleum and Shell declared an ambition to become the world’s biggest producer of renewable energy. 

That target was quietly dropped and new boss Wael Sawan has pivoted to a focus on profitable growth, spending on green stuff only if it makes commercial sense. 

BP is also expected to abandon plans to cut oil and gas production, under pressure from hard-nosed investors, one of whom described the group’s performance as ’embarrassing’.

Eco-warriors may despair but, from a stock market perspective, too much greenery could be seen as self-indulgent. 

Oil, gas and coal still account for some 80 per cent of global energy use, heating our homes and powering almost every vehicle on the road, as well as ships and planes.

Hard as we try, these fossil fuels are likely to remain a dominant feature of everyday life for some time to come – and they generate billions of pounds in revenue for Shell and BP. 

Both continue to invest in new forms of energy, from hydrogen plants to carbon capture to wind and solar but, perhaps not surprisingly, investors want returns here and now and fossil fuels are the best way to deliver them.

With shares at £25.10, Shell is way ahead of smaller rival BP – producing total returns of around 90 per cent over the past decade, including dividends. 

BP, whose shares have fallen by seven per cent over the past decade, is playing catch-up but that could mean there is more to go for, at £3.91 a share.

Would you puff on tobacco firms?

Smoking was once associated with bravura and sophistication, thanks in no small part to the efforts of big tobacco firms, who spent billions on campaigns designed to encourage us to take up the habit. Now, we know that smoking is a killer. 

Advertising is banned, shops hide cigarettes away, packets sport scary slogans and lighting up is increasingly difficult outside the home. 

Yet, still we do it. Around 12 per cent of adults smoke in the UK, down from 20 per cent a few years ago but still more than six million nationwide. Many parts of the world are more gung-ho. 

A billion people light up each day, with smoking a national past-time in countries from Indonesia in Southeast Asia to Serbia in the Balkans.

The London stock markets boasts two tobacco giants, British American Tobacco, whose brands include Dunhill, Lucky Strike and Rothmans, and Imperial Brands, makers of Lambert & Butler, Winston and Gauloises among others.

Both firms have been working hard to build a presence in so-called next generation products – vapes, nicotine pouches and gadgets that heat tobacco rather than burn it. Sales have been growing and both tout their achievements in this field. 

Nonetheless, BAT makes the vast majority of its money from cigarettes and Imperial has yet to turn a profit from vapes and the like. Sums are large. Both generate billions of pounds in cash annually and BAT, the bigger of the pair, has increased dividend payments every year for the past 26, according to investment firm AJ Bell.

Until recently, however, stock market investors were not interested. Shares in both firms more than halved and Imperial was particularly hard hit after a somewhat indiscriminate approach to smokefree gizmos. 

Both are still well below former peaks but prices have recovered sharply in recent months, reflecting self-help measures and renewed investor focus on returns.

BAT shares are up by 18 per cent so far this year and Imperial Brands have risen by 25 per cent. 

Many savers might still feel uneasy about profiting from tobacco. Those with no such scruples might consider both firms’ track record and conclude there is still money to be made in this industry.

Would you drink to these ‘cheap’ stocks?

According to government data, we Brits consume around 18 units of alcohol a week – equivalent to around two bottles of 12 per cent wine each. 

That’s less than countries such as France and Germany but more than the NHS would like. We also have a particular tendency to binge, guzzling most of those units on one or two nights a week. 

Given our penchant for booze, investors might think breweries, pubs and drinks firms would deliver fabulous returns. Sadly not.

Drinks giant Diageo is the name behind some of the best-known brands in the business, from Smirnoff to Johnnie Walker and from Guinness to Baileys. 

Valued on the stock market at almost £60 billion, the company was a top performer for many years. Shares soared to more than £40 in 2022 but the stock has tumbled to little more than £25 since then, hit by tough economic conditions and a few own goals to boot. 

Chief executive Debra Crew believes long-term prospects are sound but admits that consumers remain cautious. That suggests Diageo shares are unlikely to rebound any time soon, unless the group falls prey to takeover action.

Brewers and publicans have come under even more pressure. Covid-19 hit them hard and most have yet to fully recover. 

Take Shepherd Neame, the UK’s oldest brewer, whose beers include Spitfire lager and Bishops Finger ale. Based in Faversham, Kent, the firm can trace its roots back to 1147, making beer for local people when the water was too dirty to drink. 

Recent years have not been kind to this business and the shares have more than halved to £5.80, even though sales and profits are rising and independent auditors value its pub estate at £12.17 a share. 

Despite stock market pessimism, chief executive Jonathan Neame is confident about the future, with plenty of plans for growth. Fans of family-run businesses could do worse than take a punt on Shepherd Neame, which has proved its mettle over centuries.

Founded in 1831, Young’s & Co is a stripling compared to its Kentish peer but the Aim-listed brewer and pub group is substantially larger and takes pride in being one of the most profitable firms in its field. 

Young’s portfolio also includes The Alexandra in Wimbledon, London, which can make a fair bid to be more saint than sinner, offering free turkey dinners to anyone on their own on Christmas Day, a tradition now in its tenth year.

Like most in this industry, however, Young’s shares have been hammered since 2020, virtually halving to £9. Brokers believe the stock is worth more than £15 – and the numbers stack up – but, with rumours that Chancellor Rachel Reeves might clobber Aim stocks in her budget, only the bravest investors will hit on Young’s shares now.

Should you buy sin stocks? 

Some investors swear by sin stocks, arguing that they provide goods and services that are essential, addictive or just too tempting. 

A look at our list of reprobates however shows marked differences between some sinners and others. 

Politicians see them as easy targets, management can drop the ball and trends can evolve. Right now, investor emphasis seems to be fixed on financial returns but that may shift again in time. 

Ultimately then, similar rules apply across the market, to saints, sinners and everyone in-between. You win some, you lose some, but firms with shrewd managers, attractive products and keen prices should deliver the goods over time.