This should not shock anyone that has followed the market for any length of time or is simply a student of human nature, but Diageo PLC (NYSE: DEO) the largest distiller and distributor of alcoholic beverages in the world is moving up when the market is moving down. The London Financial Times under the headline Markets are giving the devil his due reports on two new independent US academic studies by Frank Fabozzi, a finance professor at Yale, and Harrison Hong, a Princeton professor, touting the benefits of investing in "sin stocks" associated with alcohol, tobacco and gaming. They surmise that many pension funds, and conservative investors "looking to maintain an aura of respectability." do not invest in these types of companies leaving them to others. These companies also tend to be more highly taxed and regulated, which limits competition somewhat.
I have been following Diageo for a few years now and got serious last fall Chasing Value: Diageo (DEO) -- Drink up? then went on to include DEO in Chasing Value: Starting 2009 now -- AAUK, APC, DEO, & WFC.
The studies covered a period from 1970 until 2007 with the model portfolios outperforming the market in 35 of the 37 years, and left Prof. Fabozzi to conclude "The sin portfolio's superior performance is robust and uniform across different time periods, industries and national markets."
DEO, which closed yesterday at $55.97 was up over 4% to $58.42 in early afternoon trading. This stock is not a high flyer, and other stocks may be more rewarding over short periods of time. However, it is the tortoise that will win the race, with little volatility having a beta of 0.72, while paying over a 4% yield.
Update: DEO closed at $58.30, up 4.16% for the day.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of DEO.
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