Shares of alcohol, tobacco, gambling, and other vice vendors bring forth gained during recessions. But the sinful strategy hasn’t paid off lately

By Ben Steverman

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Companies that force money from transgression and vice may be naughty, excepting that rarely prevents investors from trying to profit from them. Such stocks—especially alcohol, tobacco, and gaming companies—are often touted as great investments during economic downturns. Other vice stocks include weapon makers, defense contractors, and sex businesses.

Bad times may force the million to cut back spending, the argument goes, but they will set aside pay in money for their vices and addictions. "Consumers do not kick their habits in tough times," Merrill Lynch (MER) skilful general Brian Belski wrote in November. When Merrill Lynch examined the performance of alcohol, tobacco, and casino stocks in all recessions since 1970, it found that while the broader S&P 500-stock index fell 1.5% on average, those addictive stocks rose an average 11%.

In the current downturn, however, the naughty are still delaying for their reward. Though the recession—which started December 2007—is placid underway, sinful stocks thus far haven’t matched their past feat. In 2008, the S&P 500 fell 39%; more evil shares have barely kept pace while others regard plunged deep into the gutter.

Tobacco makers are often cash-rich—an important attribute in tough times—and they cater to customers who can’t shut away their nicotine cravings in a recession. Yet Altria Group (MO) dropped 35% in 2008, Lorillard (LO) lost 34% and Reynolds American (RAI) fell 39%. One stock that wasn’familiarily hit so hard is Philip Morris International (PM), which fell 11% since its spin-off from Altria in March.

The cottage efforts has seen the mostly damage. Take the stock exploit of the five largest U.S. public club-house and gaming operators in 2008: Wynn Resorts (WYNN) fell 62%, Las Vegas Sands plummeted 94%, MGM Mirage (MGM) is down 84%, International Game Technology (IGT) fell 74%, and Penn National Gaming (PENN) lost 64%. All bad bets.

In the sex industry, adult nightclub operator Rick’s Cabaret (RICK) dropped 85% in 2008. Defense contractors without details did better than the mart, though Boeing (BA) shares lost half their set store by last year.

Meanwhile, some pure spirit stocks be obliged managed to beat the market. Molson Coors (TAP) slipped 5.7% and SABMiller (SAB.L) fell 18% for the year. However, InBev (INTB.BR) has tumbled 33% just since the November merger of InBev and Anheuser-Busch, as long as Diageo (DEO), the British maker of Smirnoff vodka, Captain Morgan rum, and other spirits, moved into disgrace almost 34% in 2008.