The Unethical Portfolio (Sin Stocks)

Last Updated on May 10, 2021 by Oddmund Groette

Before you continue reading we want to emphasize that the portfolio below is no recommendation to buy or sell the mentioned securities. We are no investment advisors. Please do your own due diligence.

Why an unethical portfolio of sin stocks?

The unethical portfolio. The art of not giving a fuck.

The answer is pretty simple: Sin stocks have historically outperformed the broad indices. The most obvious unethical industries include tobacco, alcohol, arms producers, gambling, cannabis, and sex, all industries that are unlikely to get disrupted.

In the US, tobacco stocks have been the best performers over the last century, while alcohol stocks have been the best performers in the UK. There is of course no guarantee that they will continue to outperform, but we believe they will, hence this portfolio of “unethical” sin stocks.

Please read more here:

Moreover, what is ethical and unethical is hard to define. For example, we believe that Coca-Cola has created more harm (diabetes 2 and insulin resistance) than tobacco stocks, even though hardly any one regards Coca-Cola as a sin stock. The line between these two types of investments is not clear-cut. These “sin”-stocks produce goods and services that are legal, but still many institutions are barred from investing in them due to ethical reasons. But you as a private investor can invest without any considerations, of course depending on your own ethical standards.

The unethical portfolio (sin stocks):

The goal of the portfolio is:

  • To beat the main indices.
  • To have a low turnover of companies. We believe in long-term compounding.
  • To have a concentrated portfolio of about ten companies.
  • Any dividends are reinvested in the same stock.

The start of the portfolio was the 3rd of July 2020 when we started with ten equal-weighted positions. The performance and value are measured in USD because we expect the majority to be US companies. We want to have a concentrated portfolio and thus we most likely will have a maximum of ten companies, but it might change based on circumstances and opportunities.

This is the current portfolio (start of the portfolio was 3rd of July 2020) measured against the S&P 500:


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Short reasoning for inclusion of stock in the portfolio:

Raytheon Technologies (RTX, NYSE)

Raytheon Technologies (hereafter referred to as RTX) is an aerospace & defense company located in the US. Raytheon is the third-largest listed defense company behind Lockheed Martin (LMT) and Boeing (BA). The company is a result of the merger between Raytheon and United Technologies. The former United Technologies was more exposed to civil aerospace, while Raytheon was a defense contractor. However, exposure to civil aviation is much less for RTX compared to Boeing. Raytheon brought in the arms, intelligence and space production, for example, known for its Tomahawk missiles.

RTX has recovered much less than the broad market since the bottom in March, most likely due to its aviation exposure. I believe RTX offers the best risk/reward among the defense contractors.

Swedish Match (SWMA, Stockholm)

Swedish Match AB is based in Stockholm, Sweden, and its main listing is on the Stockholm Stock Exchange (Ticker: SWMA).

Swedish Match is divided into snus and moist snuff, other tobacco products (mainly chewing tobacco and cigars), and lights (matches, lighters, and complementary products). This is a highly profitable and asset-light industry. The company has managed to grow the dividend at 7.5% annually, and at the same time reduced outstanding shares by 32%. Growth is mainly organic, and almost all cash is handed back to shareholders.

The market is growing; more and more people use snus in its home markets in Scandinavia. The company could be an acquisition target – rumors have been circulating for years.

Hershey (HSY, NYSE)

Hershey might not be regarded as a sin stock, but nevertheless makes products (candies and chocolate) that are not exactly healthy. I believe this is a defensive pick. Their brand has led to solid long-term performance, and I expect this to continue.

I’m long the stock because of these reasons:

  • Hershey has been in existence for 125 years and outperformed S&P 500 massively in most of the decades. Return on equity (ROE) over the last decade is 72% while return on invested capital (ROIC) is 23%. These are solid numbers. Because of its solid business, it trades at 16 times book value, thus you invest at only 4.4% ROE.
  • One of the major shareholders is the Milton Hershey School Trust, controlling about 80% of the votes, but only 26% of the shares (thus family-controlled).
  • Intangible assets and brand.
  • Cost advantage.
  • Hershey’s dominance in the U.S. confectionery industry is illustrated by the fact that it holds about 45% share of the chocolate aisle compared with about 30% for its closest competitor, privately owned Mars/Wrigley.

Heineken (HEINY, OTC)

Heineken is a Dutch brewer. While there are cheaper brewers out there, Anheuser-Busch InBev is for example much cheaper, I consider Heineken better managed and focused on long-term value creation. Heineken is majority-owned by the Heineken family via a holding company.

  • Heineken is the world’s second-biggest brewer, after Anheuser-Bush InBev (of which Altria owns 10%).
  • The global brewers have a cost advantage over smaller rivals.
  • Heineken has the best ROE and ROIC among the global brewers.
  • It has underperformed the S&P 500 over the last decade, despite solid operational metrics and share price compounding at 10% annually.
  • I expect Heineken to outperform the market over the next decade.
  • 50% is owned by a holding company owned by the Heineken family.

Galaxy Entertainment (0027, Hong Kong)

Galaxy Entertainment Group (GEG) is one of the world’s leading resorts, hospitality and gaming companies. It primarily develops and operates a large portfolio of integrated resort, retail, dining, hotel and gaming facilities in Macau. The Group is listed on the Hong Kong Stock Exchange and is a constituent of the Hang Seng Index. Macau is the equivalent of Las Vegas. The market cap is 230 billion, about 30 billion USD.

Typical in Asia the balance sheet is very conservative: Per 31 December 2019 cash and liquid investments were 20 billion HKD and an equal amount as debt. However, most of the debt is working capital, there is no long-term debt. By investing you get to own a substantial net cash position.

Despite operating with minimum leverage, Galaxy has managed to average a 23% return on equity over the last ten years. The average return on invested capital (ROIC) is 18%. It currently trades at 3.1 times book value, indicating you get an ROE of 7.5% (23 divided by 3.1).

Perhaps needless to say, but Covid-19 has cut income drastically, but this is expected to be temporary. I expect things to return to “normal” quite soon, and Galaxy will again be a very profitable company.

Pernod Richard (RI, Paris)

Pernod Ricard SA is a French family-controlled company that produces and sells wines and spirits worldwide. Their spirit brands are well known and include Absolut Vodka, Ballantine’s, Chivas Regal, Royal Salute, The Glenlivet Scotch whiskies, Jameson Irish whiskey, Martell cognac, Havana Club rum, Beefeater gin and Malibu liqueur.  Their wine brands include Jacob’s Creek, Brancott Estate, Campo Viejo, and Kenwood wines.

Pernod Ricard has a history that goes over two centuries back, and they have a history of managing their brands very well. I prefer family-controlled companies.

Despite being a very mature business, spirits are still growing at 4% in developed markets, but much faster in so-called emerging markets, like for Example China. Especially the premium brands do well in Emerging Markets, which fits both Pernod and Diageo.

Constellation Brands (STZ, NYSE)

Constellation Brands produces, imports, and markets beer, wine, and spirits in the United States, Canada, Mexico, New Zealand, and Italy. It was founded in 1945 by Marvin Sands, and the Sands family is still involved in the day to day operations. Constellation has dual stock listing, where B-owners (among them the Sands-family) have a 10-1 voting advantage over class A owners. However, the a-owners have a bigger share of the dividends and the undistributed earnings.

Constellation invested 4 billion USD in the Canadian cannabis producer Canopy Growth. This has thus far turned to be a bad a lousy investment with big losses. Despite this, I believe their moat is substantial and include the stock in the portfolio.


(We are long Philip Morris, Hershey, Altria and Diageo.)

Disclosure: We are not financial advisors. Please do your own due diligence and investment research or consult a financial professional. All articles are our opinions – they are not suggestions to buy or sell any securities.