Investing in ‘Guilty Pleasure’ Stocks Might Be Healthy Move Right Now

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During the worst of the pandemic, stocks based on “guilty pleasures” that could be enjoyed alone, like chocolate and liquor, were at their best, while those that required gathering for the fast food, drinks or gambling did not perform as well.

In a recent Real Money column, contributor Chris Versace explores how investing in stocks based on frowned-upon behavior may produce continued smiles going forward.

Read more about Versace’s stock picks and his trading ideas in Don’t Feel Guilty About Your Vices — Invest in Them.

A key question for many“guilty pleasure” stocks is how much gains being made in group settings, like bars, restaurants and casinos can overcome any losses from lone consumption and shopping in isolation, Versace wrote.

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“When assessing these opportunities, we need to be mindful that many of them, including the beer and beverage companies, will see a pick-up in their restaurant and bar-related businesses, but they will also likely experience a softening in grocery-related demand similar to what’s been depicted in recent monthly retail sales reports,” Versace wrote.

In a recent Real Money segment Jim Cramer noted that Pernod Ricard  (PDRDY) , the company behind such well-known alcohol brands such as Absolut Vodka, Chivas Regal, Jameson Irish whiskey, and others, lifted its outlook citing the “pace of recovery is proving stronger than anticipated” with on-trade (at the licensed location) demand accelerating as restrictions are lifted.

Versace wrote that the return to sit down drinking is good news for soft drink companies, not just those selling alcoholic beverages.

“This confirms the reopening view on not only Anheuser Busch Inbev
(BUD) – Get Report and Constellation Brands  (STZ) – Get Report, but it also speaks to what is an improving landscape for Coca-Cola’s  (KO) – Get Report away-from-home business and the same for PepsiCo  (PEP) – Get Report and to a lesser extent Keurig Dr. Pepper  (KDP) – Get Report, Versace wrote.

Versace explores the performance of a wide range of “guilty pleasure” stocks and finds some real upsides in the gaming stocks.

”With airlines reporting an increase in leisure travel and the Nevada Gaming Control Board’s monthly revenue report showing a pick-up on the Las Vegas Strip, gambling companies, such as MGM Resorts  (MGM) – Get Report, Las Vegas Sands  (LVS) – Get Report, Wynn Resorts  (WYNN) – Get Report and Caesars Entertainment  (CZR) – Get Report, are ones investors are likely to turn to. Among the crew, the one with the greatest upside to be had, roughly 30% to the Wall Street price target consensus of $68, is Las Vegas Sands,” Versace wrote.

Much will depend on some forthcoming reports, and the link between Las Vegas Sands and Macau (an autonomous region on the south coast of China) he wrote.

“The coming days will be ones to watch for Las Vegas Sands, as we will soon get the Nevada Gaming Control Board’s May report as well as the June one for Macau. I say this, because pre-pandemic, Macau with its casinos, hotels, and hospitality, and shopping accounted for roughly 65% of revenue for Las Vegas Sands. And as Las Vegas has begun to recover with more on the horizon, overall gaming growth in Macau turned positive on a year-to-date basis in April and was up almost 29% on that basis exiting May,” Versace wrote.

In the column, Versace offers advice on a wide range of “guilty pleasure” stocks. He says another way to stick with his guilty pleasure investment theme is with a fund set up to do just that, like AdvisorShares Vice ETF  (ACT) – Get Report. VICE has 37 holdings, with the heaviest concentration in gaming and casinos (30% of assets) followed by alcohol (21%) and restaurants and hospitality (20%). “I would note that its trading volume is a bit thin, but its year-to-date results show the guilty pleasures theme is working,” Versace wrote.

(WYNN is a holding in Jim Cramer’s Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells this stock? Learn more now.)