Investors are further assured that the stocks held in the index have nothing to do with borrowing or lending, women’s fashions, cosmetics, modern cinema, popular music, or pork.

Personally, I wouldn’t touch this fund with a barge pole. It is virtually guaranteed to earn sub-par returns.

Here’s why…

Investing in Sin Stocks vs. Socially Responsible Stocks

If you were given the choice six years ago between investing in the environmentally and socially responsible Sierra Club Stock Fund (Nasdaq: SCFSX) or investing in sin stocks with the Vice Fund (Nasdaq: VICEX), which invests primarily in tobacco, alcohol, defense and gambling, which would you have chosen?

I’ll give you a hint. Your profits would have been much bigger if your conscience weren’t your guide.

• The Sierra Fund has delivered negative returns over the past six years.
• The Vice Fund has delivered positive performance – and beaten the S&P 500 handily, too.

This is no aberration.

Merrill Lynch recently examined the performance of alcohol, tobacco and casino stocks in all recessions since 1970 and found that while the S&P 500 fell 1.5% on average, sin stocks rose an average 11%.

This downturn isn’t shaping up to be any different.

Sure, consumers are cutting their spending far more than in past recessions. But history shows that people do not drop their bad habits in hard times.

Rather many people feel an intense need to escape through alcohol, tobacco, or a trip to their local casino.

This is not too surprising.

If a citizen of ancient Greece or Rome were magically transported into the modern era, he would be astounded by the current state of agriculture, transportation, housing, medicine, architecture, technology and general living standards.

Humanity itself, however, would offer few surprises. We remain the flawed human beings we have always been, struggling with the same deadly sins our ancestors wrestled with millennia ago: greed, gluttony, sloth, pride, anger, envy and lust.

Investing in Sin Stocks Through The 7 Deadly Sins

Given this reality, when it comes to investing in sin stocks, four months ago The Oxford Clubunveiled its new Seven Deadly Sins Portfolio.

It is already up 41%, more than 10 times as much as the S&P 500.

We locked in a 92% profit in the casino stock Wynn Resorts (Nasdaq: WYNN) in 64 days. Our shares of Smith & Wesson (Nasdaq: SWHC) have doubled in less than four months. All but one of our positions are up over 20%.

Why are these vice stocks outstripping the broad market by such a wide margin? One answer is careful security selection.

But two other studies out of Yale and Princeton offer a further rationale.

• One study attributes vice stock outperformance to the lack of attention pension and other institutional investors pay to these stocks in order “to maintain an aura of respectability.” (That creates opportunity.)
• The other believes it’s because companies in sin industries benefit from high barriers to entry, thanks to strict regulations and taxation.

These factors are not likely to change.

I’m not endorsing the sin industries, incidentally.

I don’t smoke and I hope my kids never do. I don’t gamble unless the stakes are negligible. And I don’t own a handgun, although I am a supporter of Second Amendment rights.

Why Would Anyone Invest in Sin Stocks?

So why would I consider investing in sin stocks and these types of companies?

• Because my investment portfolio is a vehicle for achieving and maintaining financial independence, not for making grand moral statements.
• Consumers and investors have every right to patronize or own any legal, publicly traded business that creates jobs, pays taxes and allows citizens to enjoy their many freedoms.
• Moreover, you only need look at Afghanistan under the Taliban to see what a society unleavened by political, religion and economic freedoms looks like.

Last month French President Sarkozy made news when he said the burqua – a symbol of the repression and subjugation of women – “is not welcome in France.”

Shariah law isn’t welcome in my portfolio either. And the returns have been superb because of it.

Source:  Investing in Sin Stocks: How to Oppose Radical Islam in Your Portfolio

To stay in Vegas, you’d have to get to Vegas. And that costs money no-one is willing to spend right now. Accordingly, the supposedly recession-resistant vice stocks are taking it on the chin. Just yesterday [Thursday], we claimed our own 25% short profits share from the collapse of Las Vegas Sands (LVS) share price.

Today, I’d like to direct your attention to Wynn Resorts, Limited (NASDAQ:WYNN).

When it came to the subject of Macau, casino mogul Steve Wynn said on Wednesday: “The central government and the Macau government putting a crimp in or a slowdown in visitation was an attempt to give the community a chance to absorb the stuff that had been built.”

But that really makes no sense at all. Revenue growth has slowed as global recession and new travel restrictions on mainland Chinese tourists have hit all Macau casinos. Allowing “the community to absorb” new casinos doesn’t bring renminbi, yuan or dollars into the till. And the outlook that this may change is getting dimmer by the day:

Citi just downgraded Ctrip.com International, Ltd. (NASDAQ:CTRP), China’s premier travel service provider for hotel accommodations, airline tickets and packaged-tours in China. Analysts reduced it from a Buy to a Sell, slashing its price target from $53 to $18. We dipped below that price this morning.

If the outlook for the company who’d make a mint off shuttling Chinese gamblers to Macau is lagging… when China is lathering a good third of its currencies reserves into work-creation programs (infrastructure investment is nothing else!)… and when the companies responsible for China’s prosperity are closing at a record pace… it is time to bail.

WYNN is currently trading at around $30.15, down a hundred bucks from its 52-week high of $137.93, and uncomfortably close to its 52-week low of $28.06. Other than $3 LVS, WYNN still has a decent height to fall from.

I say short it at current levels, for gains of 15-20% by New Year’s. Cover at $33 should there be an upward bounce.

Source: After LVS, Wynn set to lose

This from Today’s Financial News:

Despite the substantial drop in the U.S. equity markets, Las Vegas Sands Corp. (NYSE:LVS) gained over 9% today. The company is currently in talks with a syndicate of banks to raise between $1.5 billion and $2 billion to finance new casino projects in Macau. The company had suspended construction on its expansion into Chinese gaming, laying off most of the 11,000 construction staff.

The stock price has dropped from over $122 last December to just above $6 today.

We think Sands is the new GM: Obtaining credit to finance the Macau project at this point is a self-defeating target. By the time the money comes in, the Chinese gaming market will be just as hard-hit as Vegas. There may be room for another 10% gain in the next weeks. More likely, the company will blow past its 52-week low of $4.32 before November is over.

Since I first wrote about this stock on August 19, 2008 (“The House always wins: Investors lose big with MGM Mirage (MGM), Las Vegas Sands Corp. (LVS), Wynn Resorts (WYNN)”), the price has dropped from $50.93 to below $5.

Short it again, for 20-30% gains by mid-December!

Source: The long dying of vice stocks: Short Las Vegas Sands (LVS) for 20-30% gains!

This from Smart Profits Report:

From late 2005 until about a year ago, gaming and casino stocks racked up huge gains – especially those with a strong presence in Macau. These include Las Vegas Sands (NYSE: LVS), Wynn Resorts (Nasdaq: WYNN), and the MGM Mirage (NYSE:MGM).

Since late 2007, however, these stocks have endured a huge drop, losing 70% to 90% of their value. Casino-related stocks such as International Game Technologies (NYSE:IGT) and Shuffle Master (Nasdaq:SHFL) have also lost a good chunk of their value.

For China, allowing some U.S. casinos to enter the Macau market is a big deal. This paves the way for further penetration into the Asian markets, which is why the casinos mentioned above did so well from 2005 to 2007.

I don’t think it’s a coincidence that these three casino stocks made their highs in October 2007 – the same month that the Chinese stock market (SSE Composite) topped out. Since then, the SSE Composite has lost close to 70% of its value.

Chinese Visa Restrictions Stifle The Action Around The Craps Table

So why has this sector endured such a brutal selloff?

There are a number of other reasons, including recessionary pressures, a lack of funding for some of the U.S.-based Macau casinos, plus China’s efforts to limit the number of visas that residents of the southern Chinese province of Guangdong need to enter Macau.

As of October 1, residents now are allowed one trip every three months instead of two months – bad news since Guangdong customers are one of Macau’s biggest revenue sources. This has investors wondering if China has any additional changes in mind, with the uncertainty weighing on these casino stocks.

Until last week, that is…

The Upside And Downside Scenarios For These Three Sector Stalwarts

Last Tuesday, LVS, WYNN, and MGM all made their recent lows. But that was the trigger point for a huge rally, with the stocks then posting gains of 100% to 200% over a four-day period.

Let’s take a quick look at upside and downside…

Upside: Based on the intraday charts, these three stocks probably have higher to go, at least over the near-term.

Downside: The intermediate-term picture is a little hazier. None of the three have triggered daily buy signals yet. Moreover, if the stock indexes are in a bearish consolidation pattern and go on to make new lows, they could give back some, or all, of their recent gains.

However, if the S&P 500 makes new lows, and moves down to the 765 area, and these three stocks do not make new lows with the index, it should represent a good, intermediate-term buying opportunity.

How To Play The Casino Like James Bond

If the gaming and casino stocks have set their lows, LVS, WYNN, and MGM should benefit more than the others.

However, if you want to diversify and spread your risk in this sector, there are a couple of other ways to do it.

Take a look at the Ladenburg Thalmann Gaming and Casino Fund (MUTF:GACFX). Unlike the Market Vectors Gaming ETF (AMEX:BJK), which is less than a year old, I prefer this fund because there is more data to analyze.

Here’s a weekly chart of GACFX, with a regression channel drawn from the October 2007 high.

The top of the regression channel this week is around $5.20, but for each week that passes by, the regression channel drops about $0.15. A couple of weekly closes above the regression channel should be bullish over the longer-term.

Source: There’s Money In This Sector… Literally

Today’s Financial News editor J. Christoph Amerger says if they are it’s news to MGM Mirage. On Tuesday, the company’s stock had plunged 10% since the casino complex opened.

The reality is the economically depressed may not have the money to fly to Las Vegas. J. Christoph says stay away from this sector…

Financial editors, by and large, are an uninspired lot. Give them a couple of years at their desks and sheer habit of repetition either turns them into incurable gold bugs or into dispensers of cyclical wisdom:

Lather. Rinse. Repeat.

The latter group tends to operate on simple stimulus-response. Call them stock reflexologists if you will. Have a hurricane warning? They turn into oil and gas bulls. Have gold go up by a buck? They start looking for inflation as a reason tyo buy more. Have a 10-20% drop in U.S. stock prices, maybe with an increase in unemployment to, say, 5.7%. They turn Dickensian.

Only that they’re typically young and American enough never to have experienced what an actual economic downturn looks like.

Accordingly, their ideas of how the Common Man reacts to economic adversity often strike me as, well, quaintly suburban.

In this sheltered world, the masses plagued by unemployment “traditionally” turn to “vice”. Much like your average local NPR commentator will blame increased smuggling of cigarettes in Maryland on 4.7% unemployment and “people having to keep their money together,” the stock reflexologist automatically looks at sin stocks.

Alcohol. Tobacco. And Gambling.

Because that’s what them unemployed do…

Then, there is real life: If drifters, grifters, and the involuntarily idle are indeed crowding into casinos, it’s news to MGM Mirage. On Tuesday, MGM plunged over 10% since it opened.

It’s still seven bucks above its 52-week low of $21.65, but the stock chart indicates that this classic sample of a sin and gambling stock is following the overall course of the wider equity markets.

So, by the way, is Las Vegas Sands – down 11%, Wynn Resorts – down 8%, and Boyd Gaming Corporation (NYSE:BYD) – down 8%.

Maybe investors should keep in mind that in real life, the economically depressed may not have the cash to fly to Vegas, either…

Of course, economic downturns do create sector-specific opportunity. They may be a bit harder to find these days, but they are Darn Good Investment (DGI) stocks out in the market right now…. companies with profits, growth, and stunningly low P/Es that can make up for short-term fluctuations with medium-term double-digit gains.

My colleague Laura Cadden has discovered one of these companies… a small aircraft manufacturer that not only increased its revenues by 11% and its net income by 27% in the second quarter over the same time last year. And its backlog actually went up by 9%.

We will release more information on this stock this coming Thursday during our TodaysFinancialNews.com Hot Stock Pick of the Week.

P.S. You can sign up to a Today’s Financial News feed for breaking news, special reports and new financial videos. Sign up through your favorite reader here. Or, if you prefer, have the feed delivered to your email.

Source: The House always wins: Investors lose big with MGM Mirage (MGM), Las Vegas Sands Corp. (LVS), Wynn Resorts (WYNN)

NEW HIGHS OF NOTE LAST WEEK

Halliburton (HAL)… oil services
Patterson-UTI (PTEN)… oil services
Carbo Ceramics (CRR)… oil services
Atwood Oceanics (ATW)… oil services
Key Energy Services (KEG)… oil services
National Oilwell Varco (NOV)… oil services
Spectra Energy (SE)… gas pipelines
U.S. Steel (X)… you guessed it
Schnitzer Steel (SCHN)… scrap steel
Fluor (FLR)… infrastructure
Quanta Services (PWR)… infrastructure
Crude oil, Natural gas, Gasoline, Corn, Soybeans, Cocoa

NEW LOWS OF NOTE LAST WEEK

JetBlue (JBLU)… airline
US Airways (LCC)… airline
Continental Airline (CAL)… airline
MGM Mirage (MGM)… casinos
Boyd Gaming (BYD)… casinos
Wynn Resorts (WYNN)… casinos
Las Vegas Sands (LVS)… casinos
Monarch Casinos (MCRI)… casinos
Winnebago (WGO)… RVs
Thor Industries (THO)… RVs
Fleetwood Enterprises (FLE)… RVs
Goodyear Tire (GT)… tires
News Corp (NWS)… media
Hershey (HSY)… candy
Playboy (PLA)… eye candy
American Express (AXP)… credit cards
Capital One Financial (COF)… credit cards
International Gaming (IGT)… gambling machines
Circuit City (CC)… landfill stuffing continues to suffer
Veolia Environnement (VE)… world’s largest water stock
Honeywell (HON)… conglomerate
General Electric (GE)… conglomerate
United Technologies (UTX)… conglomerate
XM Satellite Radio (XMSR)… satellite radio
Legg Mason (LM)… asset management
Callaway Golf (ELY)… golf equipment
Whole Foods (WFMI)… expensive groceries
General Motors (GM)… read the letter from the Chairman
Lead, Nickel

Source: Brian Hunt’s Market Notes Monday, June 30, 2008