Ahead of a possible recession, investors may want to consider certain vice stocks to buy. To be sure, the main reason centers on cynicism. With funds tight during a market downturn, consumers won’t open their wallets unless there’s a compelling reason to. And vice plays do exactly that, compel.
At the core, sin stocks represent a critical distraction during tough times. During the Great Recession, CNBC mentioned that exotic performance arts centers enjoyed a thriving demand. To be sure, that’s not surprising. With so many folks deflated from the downcycle, large groups turned to “sinful” establishments to lift their spirits.
Additionally, these recession stocks may help bring a positive effect in terms of mental health. Now, I’m not a health expert, so do take my idea with a grain of salt. However, some people may just need a pick-me-up. Whether that’s occasionally indulging in fast food or engaging in a consensual “naughty” activity, some businesses may offer stress release. With that, below are vice stocks to consider if you fear a recession.
Corporate building with Anheuser Busch (BUD) logo on it
Source: legacy1995 / Shutterstock.com
To be sure, Anheuser-Busch (NYSE:BUD) presents tremendous controversies on multiple levels. Admittedly, I have zero desire to get smoke from the uproar surrounding the social media influencer Dylan Mulvaney. What I do want to concentrate on is tech entrepreneur Bill Gates, who wagered nearly $100 million on BUD stock. Personally, I think it’s a smart move in the long run.
Sure, the controversy regarding gender identity and the implementation of progressive ideals in conservative communities provokes anger. However, what’s the root of the Anheuser-Busch business model? In my opinion, it’s to provide cheap alcoholic beverages. And there’s nothing cheaper and more popular (for some reason) than Bud Light.
Yes, Bud Light suffered a huge backlash. However, we’re talking about slipping from number one to number two. A lot of folks still drink this cr…I mean, fine alcoholic beverage. So, it remains a solid idea for vice stocks to buy ahead of a recession. Also, analysts peg BUD as a moderate buy with a $67.39 price target, implying over 24% upside potential.
McDonald’s (MCD)
McDonald's restaurant in Thailand.
Source: Tama2u / Shutterstock
A fine establishment in the culinary world, McDonald’s (NYSE:MCD) isn’t exactly what you would call one of the vice stocks. Yeah, it’s kind of a sin to eat at Mickey D’s when you’re visiting France or Italy, for example. However, questionable choices aside, MCD does rank among the top investments to consider if you fear a recession.
To be sure, the one reason that McDonald’s finds itself on a list of sin stocks is the underlying business. With Americans collectively suffering from an expansion of the waistline, the Golden Arches don’t exactly help the situation. Still, it does provide a cheap pick-me-up. And when you’re hurting physically, emotionally, and mentally, you deserve a “cheat” day to indulge yourself. In addition, while MCD doesn’t exactly scream “value” from a financial multiples perspective, it features solid long-term revenue growth. As well, the company is consistently profitable.
Symbolizing a traditional idea for vice stocks to buy ahead of a recession, Philip Morris (NYSE:PM) is one of the big tobacco giants. Now, as I’ve mentioned before, global smoking prevalence has slipped for both men and women. Therefore, this framework appears incredibly negative for a tobacco company. Still, an opportunity exists thanks to the underlying vaporizer/e-cigarette business.
I don’t want to get into the fine granularity of using e-cigarettes. However, the reality is that while many upstart vaping companies exist that could grab market share in this viable segment, entities like Philip Morris know exactly what smokers want. Thus, they’re able to craft cleaner, digital alternatives that most closely mimic “analog” smoking.
How is that different from the upstart vaping companies and their products? You’ll have to talk to smokers. But the main point is that e-cigs that mimic real cigarettes feature “tighter” draws that align with the traditional smoking experience. And it’s this tightness that smokers crave. Lastly, analysts peg PM as a unanimous strong buy with a $115.83 target, implying over 27% upside.
Green Thumb (GTBIF)
Cannabis leaf on dollar bill. Cannabis Stocks
Source: Shutterstock
Another conventional idea for sin stocks to buy ahead of a recession, Green Thumb (OTCMKTS:GTBIF) represents a cannabis specialist. You can look at its website and you’ll find an ample amount of word salad. But really, once you get past the health, happiness, and comfort shpiel, what you’re left with is a cannabis firm.
Fundamentally, what could make GTBIF one of the recession stocks to consider is the possible industry pivot. Recently, I discussed the implications of the Department of Health and Human Services (HHS) recommending the U.S. Drug Enforcement Administration (DEA) reschedule marijuana from Schedule I to Schedule III. Basically, this directive came from the very top, President Joe Biden.
Ultimately, the DEA must make the decision whether it wants to reschedule marijuana. However, if it ends up doing so, it could be hugely important for Green Thumb and the cannabis industry. For what it’s worth, analysts are enthusiastic about GTBIF, pegging it a strong buy. As well, the $14.55 price target implies over 31% growth potential.
Wynn Resorts (WYNN)
Casino stocks in Macau, China. Wynn Macau is a luxury hotel and casino resort operated by international resort developer Wynn Resorts. Casino Lisboa is owned by the STDM built in 1970.
Source: Richie Chan / Shutterstock.com
If you’re looking for sin stocks to mitigate the risk of a recession, what better way than to go to Sin City via Wynn Resorts (NASDAQ:WYNN). As one of the top developers and operators of high-end hotels and casinos, Wynn may offer economic insulation. To be fair, it’s a risky concept. Still, because Wynn caters to a wealthier clientele, it just might pan out.
Another factor that could support WYNN through a recession is revenge travel. Yes, it’s a catalyst that really hit its stride last year, as both domestic and international restrictions faded. However, the power to get out of the house remains strong this year. Granted, some of this sentiment has faded amid rising inflation. Still, Wynn’s higher-income base should be able to weather the storm.
For full disclosure, Fintel’s options flow screener – which exclusively filters for big block trades likely made by institutions – shows heavy bearish wagers this month, including bought puts and sold calls. Still, the analyst community rates WYNN a strong buy with a $132.40 target, implying 46% growth.
RCI Hospitality (RICK)
Free stage with lights, lighting devices. Gloomy entertainment stocks
Source: Oleksandr Nagaiets / Shutterstock.com
Closing out the final two ideas for vice stocks to buy ahead of a recession, RCI Hospitality (NASDAQ:RICK) is what you might call a performance arts center for adults. Mostly catering to people who identify as male, RCI patrons enjoy live visual arts performances. Often, the experience involves smoke, lights and loud music. I’ll just leave it at that.
Fundamentally, RCI provides a critical distraction. As the previously mentioned CNBC article pointed out, such establishments have a track record of robust performance during market downcycles. While every recession is different, I don’t expect much to change. If the Federal Reserve fails to engineer a soft landing, you should consider RICK.
To be fair, it’s a high-risk, high-reward proposition. Since the January opener, shares have tumbled almost 34%. That’s obviously not encouraging. Nevertheless, the two analysts who cover RICK love the idea. Both rate it a buy with an average price target of $125.50, implying just over 109% upside.
PLBY Group (PLBY)
Image of the Playboy (PLBY) logo at the company's Westwood, California headquarters.
Source: Alex Millauer / Shutterstock.com
The one special purpose acquisition company that polite society doesn’t want you to know about, PLBY Group (NASDAQ:PLBY) merged with Mountain Crest Acquisition Corp. in early 2021. Under the PLBY umbrella is the media and lifestyle brand Playboy. Another entity in the more extreme end of the fine arts industry, PLBY offers a certain appeal.
It’s so appealing, in fact, that you shouldn’t visit its website. Sure, it may be for research – and notice I’m not putting quotation marks on it – but you’ll have a difficult time explaining that to your significant other (or HR). Still, from a relevancy standpoint, PLBY represents one of the vice stocks to buy ahead of a recession because of its pick-me-up potential.
However, the one factor you must know is that you’re taking an extreme risk with PLBY. Priced at 85 cents a pop, shares have lost almost 92% of equity value since the SPAC merger. That said, analysts rate it a strong buy with a $2.85 target, implying over 235% upside.
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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
