Sultry sin stocks of the NZX

WAGES OF SIN: Sin stocks' recession-proof qualities are not guaranteed.
WAGES OF SIN: Sin stocks' recession-proof qualities are not guaranteed.

All the talk of responsible investment lately is enough to make you yawn. 

It's time to spice things up with a topic which is a little bit naughty - so-called ''sin stocks''.

Companies involved in booze, tobacco, gambling, or weapons are often said to outperform the market, even when it's down.

Why? Because sex, drugs and rock-and-roll never go out of fashion.

Sin stocks' recession-proof qualities are not guaranteed, as we shall see. But first, let's take a look at where investors can go to start earning the wages of sin.

New Zealand investment's landscape is not exactly pure as the driven snow. But it certainly it doesn't have as salacious a selection of sin on sale as the likes of the United States.

That means we've had to nip across the ditch to make up the numbers with a few choice Aussie selections.

Here's a list of 10 of the naughtiest stocks you can stash away in the bottom drawer of your portfolio - just don't tell mum.

1. SkyCity

The Auckland-based casino operator made close to $1 billion of revenues in the last financial year.

Much of that was fed into pokie machines and whirled away on roulette wheels.

Besides the obvious social costs of gambling, the company has attracted controversy over its cosy convention centre deal with the Government.

In return for footing the $402 million bill, it's getting rights for another 230 poker machine, 40 new tables, a casino tax freeze, and an extension of its exclusive Auckland licence.

For those who like to take a punt, here are the numbers:

Gross return (year to date): 7 per cent 
Price target: $4.19 (current: $3.85)
Analyst consensus: BUY

2. Delegat's Group

Wine mogul Jim Delegat is on a mission to turn his fast growing empire into one of the leading super-premium wine companies in the world.

Delegat's labels include Oyster Bay and Barossa Valley Estate - both classy drops

There's plenty of wine flowing already, and the company wants to boost sales to 3.1 million cases by 2019.

That's the equivalent of about 279 million standard drinks- or enough to get the entire population of the country on a non-stop, week-long bender.

Gross return for the year to date: 29 per cent 
Price target: $3.89 (current: $3.71)
Analyst consensus: HOLD

3. Moa    

Joining Delegat's in the booze aisle of the NZX is beer brewery Moa. 

Founded by the brains behind vodka label 42 Below, last year's public listing generated a whole lot of froth.

This cheeky drop receives extra points in the sin stakes for its edgy marketing, with its Mad Men-style prospectus including images of subservient women in suggestive poses.

Needless to say, the PC brigade were not amused.

But as the foam settled down, so did Moa's over-exuberant share price:

Gross return for the year to date: -45 per cent 
Price target: 73c (current: 69c)
Analyst consensus: SELL

4. Restaurant Brands

Gluttony is one of the seven deadly sins, as Kiwis know all too well.

We hold the dubious honour of being the second fattest nation in the world, a fact which public health campaigners often try to blame on fast food restaurants.

Restaurant Brands, which operates KFC, Pizza Hut, Starbucks and Carls Jr's stores, is frequently in the firing line.

Community leaders have accused it of deliberately expanding into new locations which target the poor and the overweight, with a proliferation of stores opening in South Auckland.

Cynical or not, it seems to be expanding the company's profits.

Gross return for the year to date: 11 per cent 
Price target: $2.98 (current: $2.77)
Analyst consensus: BUY

5. ANZ Bank

We're starting to stretch the definition a little here. ANZ doesn't produce a sinful product, but its enormous profits and hefty fees bring to mind another of the deadly sins- greed.

Of course, this could apply equally well to just about any other bank.

We're only picking on ANZ because it's listed on the NZX, and because it's the first target of class action lawsuits protesting unfair fees both here and in Australia.

To be fair to the bank, it's also involved in numerous sponsorships, grants, and community support work.

At any rate, ANZ shareholders have done extremely well for themselves recently:

Gross return for the year to date: 30 per cent 
Price target: A$33.37 (current: A$31.05)
Analyst consensus: BUY

6. Bathurst Resources

Aussie miner Bathurst has the distinction of being the only coal miner listed on the NZX. Again, mining coal is not exactly sinful, but it does have something of a reputation problem.  

Environmental groups have fought nail and tooth to try and stop it from developing its controversial Escarpment coal mine project on West Coast conservation land.

But it's got the green light from the courts, promising to return the land to its previous condition afterwards.

It's also proposed a predator management programme with DOC for at least 35 years to help protect kiwi populations.

If Bathurst isn't plundering the earth with enough gusto for your liking, there are a whopping 700 mining and resources stocks listed on the ASX to choose from.

Gross return for the year to date (since June listing): 39 per cent 
Price target: A30c (current: A19.5c)
Analyst consensus: BUY

7. Coca-Cola Amatil

Nothing washes down a bucket of KFC chicken like a tooth-rottingly sugary soda.

Some health groups reckon sugar is toxic and addictive, responsible for our expanding waistlines and growing diabetes epidemic.

Health statistics show the number of Kiwis with diabetes has almost doubled in the past 10 years.

New Zealanders certainly have a sweet tooth, so over-indulgence in coke -even the brown, liquid kind - surely qualifies as a vice.

Gross return for the year to date: -8 per cent
Price target: A$12.12 (current: A$11.87)
Analyst consensus: HOLD

8. Woolworths

You may be wondering what an innocent grocery group is doing hanging around in such insalubrious company.

We include the ASX-listed Woolies as an example that not all sin stocks are as they appear.

The guardians of the New Zealand Superannuation Fund have had several headaches where companies they've invested in have turned out to own manufacturers of cluster bombs, or tobacco.

In a similar vein, it turns out Woolworths has substantial holdings in an enormous gambling operator.

In fact, it owns more poker machines than the top five Las Vegas casinos combined, and is forecast to earn more than A$200 million ($220 million) from gambling each year.

Gross return for the year to date: 16 per cent
Price target: A$33.81 (current: A$32.91)
Analyst consensus: HOLD

9. Delecta

This ASX-listed company was at one point poised to turn prostitution into a tradable commodity.

Founded by Perth porn king Malcolm Day, it sells sex toys online and in stores.

Back in 2011 it planned to build an enormous three-story brothel in Sydney, but the development fell through when the bank pulled its funding.

Nowadays it trades as a penny dreadful around A0.3c, having fallen from A20c in early 2011.

Gross return for the year to date: -25 per cent
Price target: No data
Analyst consensus: No data

10. XTEK

XTEK brings some real firepower to our mock portfolio, with its stock price doubling over the year.

The company imports top-branded sniper equipment, assault rifles, pistols, and unmanned aircraft for military and law enforcement purposes.

But it also sells some guns and ammo to the general public, including Sig Sauer pistols and bolt-action rifles.

Gross return for the year to date: 109 per cent
Price target: No data
Analyst consensus: No data

As you can see, our selection of stocks have had hugely different fortunes over the year so far.

If you'd put $1000 into each of them at the start of the year, your portfolio would now be worth $1163 including dividends.

That's a return which falls roughly in line with broader market benchmarks.

Much research has been done into whether sin stocks really do outperform the market, but the evidence is mixed.

The most relevant study to us was conducted by Peter Phillips at the University of Southern Queensland.

He identified 45 vice shares on the ASX and analysed their returns, concluding that a skilled stock picker could indeed beat the market.

But before we get too excited, he also concluded that most people would be better off sticking with a more orthodox, diversified portfolio:

"Sin can pay, but it does not pay easily."

* All share prices and returns calculated as at midday, Tuesday December 10.

Fairfax Media