Four Smokin' Sin Stocks for Investors

Can you stand to make good money from products that are bad for you? Take a look at these four "sin stocks" in the Cigarette industry, all of which are more likely than the average stock to be higher one year from now.

"Sin stocks" is the way investors have come to refer to stocks in companies that make and/or distribute products like alcohol, adult entertainment, gambling and, of course, tobacco. Many investors avoid these stocks, feeling a sense of guilt at the notion of profiting from the vices, some of them patently unhealthy, of their fellow man and woman. For these investors, buying stock in cigarette companies, or breweries or even fast food restaurants, acts as a sort of uncomfortable endorsement of the products or services these companies provide. If you wouldn't invest in a loansharking business, goes the thinking, why invest in a company related to gambling?

But for many--if not most--other investors, a company is a company, a stock is a stock, and if the activities of that company are legal, then making money from
investing in those products presents little problem. Some even follow the suggestion of Mad Money's Jim Cramer who once quipped that anxious investors could take all the money they made from investing in Halliburton (HAL@HAL | Quote | Chart | News | PowerRating) and send it to Greenpeace if it made them feel better. And in that we tend to agree: if you buy the right stocks--the kind of stocks that are more likely to be higher in a year's time--then you can do whatever you want with the money you make.

Here are four such "sin stocks": all from the Cigarette industry, all with the sort of high PowerRatings that mark them as the kind of stocks investors should be paying more attention to in this volatile stock market.

Carolina Group (CG@CG | Quote | Chart | News | PowerRating) and Altria Group (MO@MO | Quote | Chart | News | PowerRating) are at the top of the list. Both stocks have PowerRatings of 9. Our research, going back to 1995, tells us that 9-rated stocks were higher one year later more than 79% of the time. Compare this to the average stock, which was higher one year later less than 68% of the time.

Also, as stocks with PowerRatings of 9, both Carolina Group and Altria Group are likely to outperform the average stock in a year's time. Again, based on our research looking at thousands and thousands of simulated trades, we found that 9-rated stocks gained, on average, more than 18% after one year. The average stock, by comparison, gained an average of 12-13%.

Carolina Group is the tracking stock for the operations of Lorillard, an indirect subsidiary of Loews Corporation which manufactures and sells a variety of tobacco products around the world. Based in Greensboro, North Carolina, the company's brands include Newport, Kent, True and Old Gold. Carolina Group is trading in the upper half of its 52-week price range from $92.79 to $67.28. The stock has a dividend yield of 2.20.

Altria Group is the leading cigarette maker in the world, manufacturing and distributing tobacco products through a number of popular and well-known brands ranging from Marlboro and Virginia Slims to Chesterfield, Benson & Hedges and Parliament. Altria Group trades at 15 times earnings and pays a dividend yield of 4.00. The stock is trading in the middle of its 52-week price range from $89.95 to $63.13.

The other two stocks in today's top four both have PowerRatings of 8. While not as high as the PowerRatings for Carolina Group and Altria Group, stocks with PowerRatings of 8 have also been both more reliable and better performers than the average stock. 8-rated stocks, based on our research, were higher one year later more than 74% of the time. 8-rated stocks have also tended to gain an average of approximately 17.13% after one year.

Reynolds American (RAI@RAI | Quote | Chart | News | PowerRating) is the second largest cigarette maker in the United States. The company has two top selling brands, Camel and Kool, a number of other popular cigarette lines in Winston, Salem and Pall Mall; and a number of other brands including Private Label brands. Reynolds American trades at just under 16 times earnings. With a dividend yield of 5.30, the stock is trading in the middle of its 52-week price range from $72.00 to $58.55.

While the company has been around for more than 100 years, Vector Group (VGR@VGR | Quote | Chart | News | PowerRating) tends to be a less known cigarette manufacturer. The company makes four main brands that are marketed nationally: Liggett Select, Eve, Jade and Pyramid. Vector Group has a sizable dividend yield of 8.60 and has a P/E ratio of 16.30. The stock is trading in the lower half of its 52-week price range of $24.38 to $16.60.

David Penn is Senior Editor at PowerRatings.net