Home » sin stocks » Sin Stocks Report: Summer Of Sin #23 — Are Sin Stocks In Emerging, Growing, Maturing, Or Declining Markets?

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Industries come and go. So, are sin stocks in emerging markets, growing markets, maturing markets, or declining markets?

Are Sin Stocks In Emerging Markets, Growing Markets, Maturing Markets, Or Declining Markets?

Industries come and go. As social and technological changes occur, industries go through phases.
In general, experts divide these phases into four phases…

  • Emerging — when an industry is brand new, and many aspects of economies of scale, social entrenchment, and supply chains might not be established; products and services are primarily purchased by trend-setters and market leaders.
  • Growing — when an industry’s popularity is on the rise and other companies join into the growth because they see the success; economies of scale are achieved.
  • Maturing — consumer demand has reached a peak and is beginning even to pull back slightly; the market may be saturated with products so it’s difficult for companies to grow (often resulting in growth-by-acquisition).
  • Declining — while there are still some customers purchasing, the companies in these industries are often large, bureaucratic, bloated, and many are barely aware of the threat of decline.

Each industry goes through these phases. The way companies stay in business is by extending their time in the growing market, or building/reinvesting in innovation and new businesses.

Film cameras are an excellent (but non-sin-stocks) example of an industry that has gone through all phases. In the earliest days, cameras were an emerging market as people discovered the thrilling excitement of capturing a scene permanently on film. Then it became a growing market as more and more people bought cameras. The technology grew, fueled by the profit potential; meanwhile, prices fell as cameras got into the hands of Joe and Jane Average. Then the industry matured: everyone had multiple cameras, and were inundated with choice. The industry became about companies devouring other companies and driving down prices to be competitive. Then, the industry declined because new technologies grew (first digital cameras; and later, cameras built into the ubiquitous mobile device). Today there is still a market for film cameras but it is MUCH smaller and far more specialized; only a shadow of what it once was.

So, which phase are sin stocks in? Let’s look at each category of sin stock.

Two important disclaimers:

  • Assigning sin stock categories to each phase is open to interpretation, so please always form your own opinions before making a buying or selling decision.
  • Although not everyone would agree, sin stocks have the potential to move out of a phase in reverse, thus potentially reinvigorating their business (as we shall soon see)…

Alcohol sin stocks. Alcohol sin stocks have been in a maturing industry for a while. Both beer, wine, and spirits companies have grown strong footholds in their marketplaces and have been (for a while) at the point of acquiring other companies to leverage those companies’ brands and other advantages. In many ways, we’re seeing saturation across global markets of many mainstream brands. So it’s not surprising, then, that a sub-category of this industry is the small batch craft brewers (and craft distilleries) that have grown up, which were part of a trailing-behind-the-big-guys emerging market but are now being devoured through further acquisition. Doe that mean alcohol sin stocks will start to decline? Probably not for a while. We believe this category has a long shelf life because of how broad it is (beer, wine, and spirits), and because of how historic the product is (alcohol has been around for thousands of years). So a significant decline isn’t likely but companies will struggle to see the same level of growth that they once did.

Defense/conflict sin stocks. Defense sin stocks are a tricky one to identify. They’re not emerging because they’ve been around for a while. They’re not declining because we’re seeing great demand for their products and services. I don’t believe they are in the maturing market, but rather I believe they are still growing because of the following 2 reasons: (1) Global conflict seems to be on the rise (or, at least the newsmedia will make us think so) and people are fearful. Therefore, they rely on militaries, private military contractors, and defense suppliers to protect them. (2) New technologies are creating interesting opportunities. For example, drones and remote technology seems to be a burgeoning area for defense suppliers to provide to militaries. I think we should watch for more of these in the future.

Crime sin stocks. Like defense sin stocks above, crime or prison sin stocks were another challenging one to nail down. I don’t believe prison sin stocks to be emerging or declining; I think they are growing for a similar reason to defense stocks: fear. People are fearful, which means they rely on governments to protect them, which means catching more criminals, which means a greater need for prisons. As long as people are fearful and crazy things happen in our own country, I believe we’ll have a need for prison sin stocks. The biggest threats to turn this into a mature or declining industry are either a decrease in fear (and a resulting increase in leniency), or, people refusing to allow the government to hand over the keys to a prison to a for-profit company.

Gambling sin stocks. Gambling is a mature industry. It’s established, it’s competitive but casinos seem to be struggling to innovate. Their key demographic is aging and they are trying to attract younger people (like Millennials) to casinos but that new demographic doesn’t have the money, time, or values that the casino’s older demographics do. Millennials are only choosing to travel for adventure and to create experiences, not necessarily to play all night at a casino with a free buffet.

Marijuana sin stocks. Marijuana is an emerging market. Sure, the use of marijuana isn’t necessarily emerging, but marijuana is emerging as a publicly traded company, for increasingly accepted medicinal purposes, and for increasingly accepted recreational purposes.

Sex sin stocks. This one was very challenging to identify because there simply aren’t a lot of sex sin stocks! What’s more, sex sin stocks are almost too large of a category to tackle on their own, since they can include more hardcore sin stocks like FriendFinder (FFNTQ) or RCI Hospitality Holding (RICK), but we believe also include just as exploitative but softer core Hooters (owned by Chanticleer Holdings (HOTR)), and some might say that companies that make condoms or Viagara(R) could be sex sin stocks too! But, since sex is THE perennial topic that has consumed humankind since the dawn of time, and it’s probably not going away any time soon… well, this is probably an emerging industry with room for more players who are daring enough to step in.

Tobacco sin stocks. Tobacco is a mature industry that we believe is close to reaching its tipping point toward decline. Tobacco companies have reached a point of market saturation. And the new demographic who are replacing baby boomers are more health conscious, more cancer-fearful, and less likely as a cohort to take up smoking. The only way they can get new customers is by acquiring other companies (which has been happening), or by innovating new products (which they are doing through e-cigarettes), or by convincing the next generation to start smoking. It’s not all downhill from here; like alcohol, this industry has legs and will go for a while, but unless they find a unicorn product or a new way to market, they may see significant declines in the future.

DISCLAIMER

Nothing on this site is a recommendation because, hey, I can't read your mind and I don't know what you have in your portfolio, and I'm not a licensed financial advisor. So never EVER trade without doing your due diligence. If you want more information about this fascinating topic, please check out the Sin Stocks Disclaimer page which basically says the same thing but more emphatically.