Thursday, August 2, 2007

Alternative Investments In Sin

Towards the end of 2005 an index that tracks what some refer to as sin stocks was created. The ISE SINdex includes owners and operators of casinos and gaming facilities, producers of beer and malt liquors, distillers, vintners and producers of other alcoholic beverages, and manufacturers of cigarettes and other tobacco products. This group of stocks sounds recession proof for the most part. If times are tough, people might not travel to Las Vegas casinos as much, but consumers of cigarettes and beer probably will sacrifice in other areas before giving up their vices. Below are the components of this index.

The chart above shows the Sindex and the S&P 500 Index since late 2005. The bottom pane is a spread ratio between the two indexes. The overall slope of this spread ratio shows that this group of stocks as a whole has outperformed the S&P 500 Index. There are times marked by the green lines where its performance has been significantly stronger. The attractiveness of these stocks in respect to tobacco stocks is that there products are sold all over the world, and a weak dollar does help in overseas sales. Even with lawsuits and people quiting, or trying to quit, cigarettes the profits of these companies are strong.

The two charts above show Altria and Carolina Group compared to the S&P 500. These are both big tobacco companies who have global exposure and new markets opening in which to sell their products. The charts sure don't look like everyone is ready to quit smoking.

The next two charts show two casinos, Wynn Resorts and Las Vegas Sands.

These two casino companies have performed well, but they both seem out rally when the market rallies and do so at a greater percentage rate. They do not act as a hedge against a declining market like the tobacco stocks seem to do.

What would a sin index be without a couple beer stocks. Below is a chart of Molson Coors. It pretty much followed the performance of the market until late 2006 and then really went on a strong move. Maybe this stock could again have a move with increased business during football and hockey season this fall/winter.

If one believes in the concept of sin-stocks, then the stocks in this index are really the precursors to sin, not sin themselves. In June of 2005 Stanford University's trustees decided to have its endowment divest a few companies that they felt went against the principles of the university.

"Divestment is an act that should be made rarely and carefully," said Stanford President John Hennessy. "In this case, it was clear that the genocide occurring in Darfur, which appears to be at least partly enabled by these four companies, is in direct opposition to Stanford University's principles."

Stanford University divested all directly held investments in PetroChina, ABB Ltd., Sinopec and Tatneft because of their business operations in support of the Sudanese government. This decision was probably not an easy one. There are often potential conflicts when investing. If you were against stem-cell research, would you invest knowingly in a bio-tech company that did stem-cell research? Weather you did or not would be your personal decision. Recently at the Berkshire Hathaway annual shareholder's meeting, the topic of Petro-China was voted on. One person voted to sell the shares held, the rest were fine with idea of holding these shares. Below are two charts of Petro-China and ABB, both compared to the S&P 500.

Both of these trades have been great winners over the last couple years. Stanford had other great winners besides these two that they divested their holdings of. Investing /trading is a can be a very hard game, and it gets more difficult when more rules are applied to what is being bought and sold. How many mutual funds own stocks and know the ramifications of all the companies they own stock in? There are funds that market themselves to investors saying they stay away from sin-companies or environmentally unfriendly companies. How much of this is marketing? How many own Time Warner and not know that they get royalties every time an adult movie is ordered in a hotel room? It is so hard to know everything a company does. Companies that take over other companies and gut the pension benefits sure seem like they should be in a sin index, but that is just business, nothing personal. If we get to carried away, would could include every defense company in a sin index, eventually we would end up with the Sin & P 500.

It is in agreement that some companies should be held accountable for their business dealings. This can be done by shareholders as well as by law. There are restrictions on U.S. companies on which countries they can and cannot do business in. Maybe if companies in the Sindex could do business in these countries, the world would be a better place.

It sure would be nice to find more charts that looked this good. Juniper almost looked that good back in March when it broke its channel..and it keeps going. I wonder what sin Juniper is up to?


Companies Mentioned

MO - Altria Group, Inc., through its subsidiaries, engages in the manufactures and sale of cigarettes and other tobacco products in the United States and internationally. The company sells its tobacco products to wholesalers, large retail organizations that include chain stores, and the armed services, as well as distributors, wholesalers, retailers, and state-owned enterprises. It also engages in the manufacture and sale of packaged foods and beverages, including canned meats, tomato, fruit juice, snacks, cheese and dairy, grocery, and convenient meals. The company sells its products to supermarket chains, wholesalers, super centers, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores, and other retail food outlets. It also offers direct finance leasing services, primarily in transportation, power generation, and manufacturing equipment and facilities. The company was founded in 1919 and is based in New York, New York.

CG - Carolina Group, through its subsidiary, Lorillard, Inc. produces and sells cigarettes. It sells its products under Newport, Kent, True, Maverick, and Old Gold brand names in the United States, Puerto Rico, and certain U.S. territories through distributors. The company was founded in 1969 and is based in New York, New York.

WYNN -Wynn Resorts, Limited, together with its subsidiaries, engages in the development, ownership, and operation of destination casino resorts in the United States. The company owns and operates Wynn Las Vegas casino resort, which includes food and beverage outlets comprising 6 dining restaurants, a nightclub, an ultra-lounge, a spa and salon, a Ferrari and Maserati automobile dealership, wedding chapels, an 18-hole golf course, meeting space, and foot retail promenade featuring boutiques. As of December 31, 2006, it had 132 table games, a baccarat salon, private VIP gaming rooms, a poker room, 1,974 slot machines, and a race and sports book. The company also owns Wynn Macau casino resort. Wynn Resorts was founded in 2002 and is based in Las Vegas, Nevada.

LVS - Las Vegas Sands Corp. and its subsidiaries develop and operate hotel, gaming, and resort businesses. It owns the Venetian resort-hotel-casino and the Sands Expo and Convention Center in Las Vegas, Nevada; and The Sands Macao Casino in Macao, the People's Republic of China (PRC). The company's casino resorts include hotels, exhibition and conference facilities, casinos, showrooms, shopping malls, spas, restaurants and entertainment facilities, expo and convention centers, and other attractions and amenities. It is also developing the Venetian Macao resort-hotel in Macao, the PRC; the Palazzo resort-hotel-casino in Las Vegas, Nevada; Sands Bethworks in Bethlehem, Pennsylvania; and the Marina Bay Sands in Singapore. The company was founded in 1988 and is headquartered in Las Vegas, Nevada.

TAP - Molson Coors Brewing Company, through its subsidiaries, engages in the production and sale of beer and other beverages in the United States, Canada, and the United Kingdom. The company offers products under the Coors Light, Coors, Coors Non-Alcoholic, Blue Moon Belgian White Ale and seasonal Blue Moon brands, George Killian's Irish RedO Lager, Keystone, Keystone Light, Keystone Ice, and Zima XXX brand names, as well as under the Molson Canadian, Molson Dry, and Molson Export brands. It also provides its beer products under various brands, including Carling, C2O, Coors Fine Light Beer, Worthington's ales, Caffrey's, Reef, Screamers, and Stones; and Grolsch brand through a joint venture. In addition, the company sells Grolsch brand of beers, as well as distributes Amstel Light, Heineken, Murphy's, Asahi, Asahi Select, Corona, Miller Lite, Miller Genuine Draft, Milwaukee's Best, Milwaukee's Best Dry, Foster's, and Foster's Special Bitter brands under license. Molson Coors distributes its products through a three-tier system consisting of manufacturers, distributors, and retailers. The company was founded in 1873. It was formerly known as Adolph Coors Company and changed its name to Molson Coors Brewing Company in 2005. Molson Coors is based in Montreal, Canada.

PTR - PetroChina Company Limited, together with its subsidiaries, engages in petroleum and natural gas related activities in the People's Republic of China. It operates in four segments: Exploration and Production, Refining and Marketing, Chemicals and Marketing, and Natural Gas and Pipeline. The Exploration and Production segment engages in the exploration, development, production, and sale of crude oil and natural gas. The Refining and Marketing segment involves in refining, transportation, storage, and marketing of crude oil and petroleum products. The Chemicals and Marketing segment produces and sells basic petrochemical products, derivative petrochemical products, and other chemical products. The Natural Gas and Pipeline segment transmits natural gas, crude oil, and refined products, as well as sells natural gas. As of December 31, 2006, the company had estimated proved reserves of approximately 11,618 million barrels of crude oil and approximately 53,469.2 billion cubic feet of natural gas, as well as operated 18,207 units of service stations. It owned and operated 20,590 kilometers of natural gas pipeline networks, 9,620 kilometers of crude oil pipeline, and 2,413 kilometers of pipeline for refined products. The company was founded in 1988 and is headquartered in Beijing, China.

ABB - ABB, Ltd. provides power and automation technologies to utility and industry customers worldwide. The company's Power Products division offers transmission and distribution products and services, including high-and medium-voltage switchgear and apparatus, circuit breakers, and power and distribution transformers. ABB's Power Systems division offers network management, utility communication, transmission and distribution substations, flexible alternating current transmission systems, high-voltage direct current systems, and automation and electrical solutions for power plants; and automation, control and protection systems, and related services for power transmission and distribution networks, and power plants. The company's Automation Products division offers low-voltage switchgears, breakers, switches, control products, DIN-rail components, enclosures, wiring accessories, instrumentation, drives, motors, generators, and power electronics systems. ABB's Process Automation division offers industry-specific solutions for plant automation and electrification, energy management, process and asset management, analytical measurement, and telecommunication; field repair services, spare parts, remote monitoring, training, and upgrades; specialized solutions for turbo charging; and propulsion and electrification systems for the marine industry. It also provides services for engineering, design, consulting, compliance, validation, benchmarking, plant performance improvement, safety and hazardous operation analysis, and reliability analysis. The company's Robotics division offers robots, services, and modular manufacturing solutions for use in assembly, finishing, and machine tending; standardized manufacturing cells for machine tending, welding, cutting, painting, and finishing; and packaged systems to automobile manufacturers for press automation, paint process automation, and power train assembly. The company was founded in 1883 and is headquartered in Zurich, Switzerland.

JNPR - Juniper Networks, Inc. engages in the design, development, and sale of assured Internet Protocol (IP) secure networking solutions primarily in Americas; Europe, Middle East, and Africa; and Asia Pacific. Its solutions are incorporated into the global Web of interconnected public and private networks across various media, including voice, video and data, and travel. The company's network infrastructure solutions enable service providers and other network-intensive businesses to support and deliver services and applications on an integrated network. Its infrastructure product family consists of M-Series and T-Series, and E-Series products. The company's service layer technologies (SLT) provide network security solutions; and enable customers to provide additional IP-based services and enhance the performance and security of their existing networks and applications. The SLT product family comprises firewall and VPN systems; firewall and VPN appliances; SSL VPN appliances; IDP appliances; application acceleration platforms; unified access control; and AAA and 802.1X products. In addition, the company offers technical assistance, hardware repair and replacement parts, unspecified software updates, and professional and educational services. Its customers include service providers, such as wireline, wireless, and cable operators, as well as Internet content providers; enterprises; governments; and research and education institutions. The company sells and markets its products through its direct sales organization, value-added resellers, and distributors. Juniper Networks, Inc. was founded in 1996 and is headquartered in Sunnyvale, California.

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