15 Best Sin Stocks To Buy in 2023

Published on January 5, 2023 at 1:30 pm by Fahad Saleem in Hedge Funds, News

In this article, we will take a look at the 15 best sin stocks to buy in 2023. If you want to skip our introduction about the industry, then go directly to 5 Best Sin Stocks To Buy in 2023.

Stocks of companies that are involved in businesses like gambling, tobacco production, adult entertainment, alcoholic beverages and gun manufacturing are often known as sin stocks. They are dubbed “sin” stocks since the business areas they operate in are considered unethical by many.

Irrespective of their moral standing, sin stocks offer strong growth prospects for investors because the industries they are operating in have a bright future. Take gambling and casinos, for example. The online gambling alone had an estimated market value of $57.54 billion by 2021. This market is expected to grow at a CAGR of 11.7% from 2022 to 2030, according to a report by Grand View Research.

Similarly, the alcoholic beverage industry, in which several major sin stocks are operating, is expected to reach a market size of $2,684 billion by 2027, growing at a CAGR of 2.4%.

Should you invest in sin stocks in 2023? Is it a good strategy to be morally cautious when making investment decisions? Data is mixed. A Financial Times article quoted research done in the 2000s which said that sin stocks outperform the market. The article also quoted Frank Fabozzi of Edhec Business School, who said that “an economic gain might accrue for not conforming to social standards.”

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Our Methodology

For this article, we scanned Insider Monkey’s database of the holdings of 920 hedge funds and picked those sin stocks that are the most popular among these money managers. Our research has shown that the strategy of imitating the smart money with caution and research boosts chances of beating the market. The stocks mentioned in this article are solid picks for 2023 and beyond. Many of these stocks are strong defensive plays with decent dividends, while others have long-term growth prospects.

Best Sin Stocks To Buy in 2023

15. RCI Hospitality Holdings, Inc. (NASDAQ:RICK)

Number of Hedge Fund Holders: 13

Texas-based RCI Hospitality (NASDAQ:RICK) operates strip clubs, nightclubs and adult clubs. The company is on an M&A spree over the past few months. In December, it bought an adult nightclub’s assets in Fort Worth, Texas, for $2.4 million cash. RCI Hospitality (NASDAQ:RICK) had announced that it planned to buy two Baby Dolls and three Chicas Locas adult nightclubs and their associated real estate in the Dallas-Fort Worth and Houston markets for $66.5 million.

RCI Hospitality (NASDAQ:RICK) is also a dividend-paying stock. In December, RCI Hospitality (NASDAQ:RICK) declared a $0.05/share quarterly dividend, in line with previous.

13 hedge funds tracked by Insider Monkey are bullish on the company.

Here is what Greystone Capital Management has to say about RCI Hospitality Holdings, Inc. (NASDAQ:RICK) in its Q2 2022 investor letter:

“As I’ve said before, a frustrating element of today’s market environment is having to watch one of our businesses perform brilliantly quarter after quarter while the stock price either declines or barely reacts to positive operating results. RICK continues to perform well in both their nightclub and Bombshells segments, with their recent 11-club acquisition set to contribute nicely to both the top and bottom line during FY22, while Bombshells growth will continue as the company expands both corporate and franchise locations. In January, RICK stock reached an all-time high of $92/share, only to decline nearly 50% to today’s price as macro concerns dominate the mood and capital flows away from retail, consumer discretionary and restaurant stocks. While RICK’s industry/sector is a tough one for many investors to wrap their heads around owning right now, I believe the company is being unfairly lumped into the broader restaurant and consumer discretionary categories while being compared with weaker and less attractive peers. So why would we want to own RICK? In terms of navigating the current or potential economic environment, RICK’s variable cost structure, balance sheet and access to capital provide significant advantages. The business has pricing power on both the service and alcohol sides, has assets to monetize, and is on a mission to acquire another $20mm of EBITDA by 2023 via accretive M&A where they serve as the buyer of choice for mom-and-pop nightclub operators. Should they achieve this goal, shares would be trading at around 5x next year’s EBITDA making RICK one of the cheapest stocks in the entire restaurant universe. This isn’t lost on management, who are repurchasing shares hand over fist at a high free cash flow yield while the stock trades at unreasonable levels…” (Click here to see the full text)

14. Anheuser-Busch InBev SA/NV (NYSE:BUD)

Number of Hedge Fund Holders: 14

Anheuser-Busch InBev SA/NV (NYSE:BUD), commonly known as AB InBev, is a drinks and beverage giant. The Belgian company is behind several well-known drinks brands, including Budweiser, Bud Light, Beck’s, Stella Artois and Corona, among many others. In November, Anheuser-Busch InBev SA/NV (NYSE:BUD) gained ground after JPMorgan upgraded it to Overweight from Underweight. JPMorgan analyst Jard Dinges said in a note to investors that he and his team now see earnings growth potential for the company and “a rapidly deleveraging balance sheet” was also one of the reasons behind the ratings upgrade. Some of the possible growth drivers for the stock mentioned in the note by the JPMorgan analyst included the Anheuser-Busch InBev SA/NV (NYSE:BUD)’s strengths in Latin America. The analyst also said that Anheuser-Busch’s is also benefiting from an underappreciated rebound of domestic light beer.

13. The Boston Beer Company, Inc. (NYSE:SAM)

Number of Hedge Fund Holders: 18

The Boston Beer Company, Inc. (NYSE:SAM) is also a decent sin stock to buy according to hedge funds. 18 hedge funds in Insider Monkey’s database had stakes in the company as of the end of the third quarter. The total value of these stakes was $144 million. Among the notable shareholders of the company are Ken Fisher’s Fisher Asset Management ($46 million stake) and Israel Englander’s Millennium Management ($43 million stake).

In October, The Boston Beer Company, Inc. (NYSE:SAM) stock surged after the company posted strong revenue growth. Gross margins came in at 43.2%, up from 30.7% posted in the same quarter last year.

12. Red Rock Resorts, Inc. (NASDAQ:RRR)

Number of Hedge Fund Holders: 18

Red Rock Resorts, Inc. (NASDAQ:RRR) operates spas, hotels and casinos. Red Rock Resorts, Inc. (NASDAQ:RRR) is one of the best sin stocks to buy for 2023. Deutsche Bank recently picked the stock as its favorite for regional gaming. The firm’s analyst Carlo Santarelli said that Red Rock Resorts, Inc. (NASDAQ:RRR) tops his list of domestic gaming picks due to the company’s organic growth pipeline and continued expense discipline.

As of the end of the third quarter, 18 hedge funds tracked by Insider Monkey had stakes in Red Rock Resorts, Inc. (NASDAQ:RRR). The total value of these stakes was $165 million.

11. Diageo plc (NYSE:DEO)

Number of Hedge Fund Holders: 20

Diageo (NYSE:DEO) is a UK-based alcoholic beverage company. It is one of the best sin stocks to buy for 2023 for a variety of reasons. Diageo’s management is targeting 6-9% organic EBIT CAGR from fiscal year 2023 to fiscal year 2025.

In October, Diageo (NYSE:DEO) management said that the company had made a strong start to fiscal 2023, with organic net sales growth across all regions. However, Diageo (NYSE:DEO) said that it expects a challenging year ahead amid geopolitical certainty and inflationary pressures.

Of the 920 hedge funds tracked by Insider Monkey, 20 were bullish on the company as of the end of the September quarter.

10. Wynn Resorts Limited (NASDAQ:WYNN)

Number of Hedge Fund Holders: 23

Wynn Resorts Limited (NASDAQ:WYNN) is one of the best sin stocks to buy and hold in 2023. Wynn Resorts Limited (NASDAQ:WYNN) operates several resorts and casinos all over the world. Some of these include Wynn Las Vegas, Encore at Wynn Las Vegas in Las Vegas, Nevada, Wynn Macau in Macau, China, Encore at Wynn Macau in Macau, China and Wynn Boston Harbor in Everett, Massachusetts

Earlier this month, Wells Fargo added Wynn Resorts Limited (NASDAQ:WYNN) in its list of its high conviction picks for the first quarter. Wells Fargo gave an Overweight rating to the stock and upped its price target on the firm to $101 from $74.

9. PENN Entertainment, Inc. (NASDAQ:PENN)

Number of Hedge Fund Holders: 30

PENN Entertainment, Inc. (NASDAQ:PENN) is a casino and gaming company based out of Pennsylvania. Last month, PENN Entertainment, Inc. (NASDAQ:PENN) announced a $750 million stock buyback program. In November, the stock remained in the news after a disclosure showed that Goldman Sachs had purchased 4.5 million shares of the company in the third quarter. Analysts speculated that this activity should be a sign of an initiative by an activist investor. Insider Monkey’s data shows that PENN Entertainment, Inc. (NASDAQ:PENN)’s biggest stakeholder as of the end of the third quarter was Parag Vora’s HG Vora Capital Management, which owns a $206 million stake in the company.

Baron Funds made the following comment about PENN Entertainment, Inc. (NASDAQ:PENN) in its Q3 2022 investor letter:

“Shares of gaming company PENN Entertainment, Inc. (NASDAQ:PENN) declined 9.6% in the quarter and penalized performance by 10 bps. This was due to investor concerns that a potential recession would result in a slowdown or decline in its earnings growth rate. However, thus far, the company has seen no material change to visitation or spending levels, and its earnings remain strong. PENN is generating strong cash flow, which it continues to use to invest in its digital growth opportunity, while using excess cash to buy back its stock. PENN is well positioned to weather a slowdown or recession, and we believe that even if one does occur, the company would still generate revenue and EBITDA above pre-pandemic levels. We consider the $50 million of losses this year from its digital business to be modest in relation to PENN’s over $1 billion of EBITDA from its casino business. The losses from its digital business represent customer acquisition costs incurred as additional states legalize online gambling. Since it is far less expensive to retain existing customers than to acquire new ones, we expect marketing costs to decline as PENN builds its customer base. PENN’s core bricks and mortar casino business remains strong, and the company’s healthy regional casino business and strong balance sheet enable it to absorb its digital losses.”

8. Molson Coors Beverage Company (NYSE:TAP)

Number of Hedge Fund Holders: 34

Another alcoholic beverage company on our list, Molson Coors Beverage Company (NYSE:TAP) is a Canadian company that sells a variety of beer and drinks brands. The company is also a dividend payer. In November last year, Molson Coors Beverage Company (NYSE:TAP) announced a $0.38/share quarterly dividend. Forward dividend yield at that time came in at 2.8%. In December, during fireside chat with Evercore ISI, Molson Coors Beverage Company (NYSE:TAP)’s management said that October 2022 was a tough month for the beer industry, mainly due to the price increases. However, the company said that its consumer sentiment shows that the beer market is still resilient despite the challenges.

The company’s management reiterated that it plans to invest in dividends and cutting down debt.

7. Boyd Gaming Corporation (NYSE:BYD)

Number of Hedge Fund Holders: 36

Boyd Gaming Corporation (NYSE:BYD) operates hotels, casinos and resorts. As of the end of the third quarter, 36 hedge funds tracked by Insider Monkey reported having stakes in the company. The total value of these stakes was $809 million. Parag Vora’s HG Vora Capital Management is the biggest stakeholder of the company among these funds, with a $238 million stake.

Boyd Gaming Corporation (NYSE:BYD) is also a decent income play. In December, the company announced a $0.15/share quarterly dividend. Forward dividend yield at that time came in at over 1%.

In October, Boyd Gaming Corporation (NYSE:BYD) posted strong third quarter results. Boyd Gaming’s revenue in the period was up 4.1% despite macroeconomic headwinds.

6. Constellation Brands, Inc. (NYSE:STZ)

Number of Hedge Fund Holders: 43

Constellation Brands, Inc. (NYSE:STZ) is behind various well-known beer, wine, and spirits brands. Some of these notable brands Corona, Modelo Especial, Negra Modelo, and Pacífico, Svedka Vodka, Casa Noble Tequila and High West Whiskey.

Wedbush analyst Gerald Pascarelli named the stock one of his top picks in the alcohol industry. While he believes the industry has been hit with several headwinds like changes in consumer taste and macroeconomic challenges, he is hopeful that the industry would recover by a “reversion to historical norms.”

As of the end of the third quarter of 2022, 43 hedge funds tracked by Insider Monkey reported having stakes in Constellation Brands, Inc. (NYSE:STZ). Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital is the biggest shareholder of Constellation Brands, Inc. (NYSE:STZ) with a $314 million stake.

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