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Investing the Hard Way: The Portfolio of Ultimate Sin

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Portfolio of Ultimate Sin - "These Stocks Never Looked Better"In honor of Super Bowl weekend, I will pass on detailed analysis of gambling stocks for the week. Instead, since most us will be hungover on Monday morning, and I will spend the entire weekend functioning at less than peak intelligence, I’ve chosen a few well-timed “sin stocks” for the Super Bowl weekend. With Mardi Gras and St. Patrick’s Day coming up, these stocks have never looked better.

It can be easy to forget while reading charts, running screens based on 50-day moving averages and stochastics, and reading footnotes from the 2008 10-K of a Chinese pig feet conglomerate, that life is supposed to be fun. And investing can be fun, too — if you choose the right stocks.

That’s why I’ve created the Portfolio of Ultimate Sin (cue the ominous thunder), a portfolio of companies with whom our hard-earned investment rewards can be exchanged for self-destructive, unhealthy, and ludicrously fun activities. Should you invest in the Portfolio of Ultimate Sin? Absolutely — as you long as you do your part to ensure that these companies stay profitable and healthy while significantly decreasing your chances of doing the same. What are you, chicken?

(Editors note: It could be argued that such a portfolio is a reasonable, defensive investment strategy against the backdrop of high unemployment and an uncertain economic recovery. Indeed, that is the strategy of the now-defunct PUF ETF and the Vice Fund. That is not the point of this article, however. This is not advice for protecting your wealth, this is advice for exposing your liver and other vital organs.)

1. Frederick’s of Hollywood (FOH) - Closing Price 2/3: $0.56

What, you thought I’d pick the Limited (LTD), owner of Victoria’s Secret? Victoria’s got nothing on Frederick. Victoria’s Secret is for elegant romantic nights with a loved one; Frederick’s is for trashy, late-night rendezvous (rendevzouses? rendezvi? I don’t know French) with barmaids and biker chicks in creepy motels on the bad side of town. Don’t believe me? Check the website . (Not if you’re at work. Seriously. There’s no excuse for being fired for looking at pictures of half-naked women while working, not when the Internet offers videos of fully naked women doing things illegal in most of the Western world for the same risk.) Frederick’s is unprofitable, loaded with debt, thinly traded, and volatile, with a beta over 2. Its book value – the value of its assets, less the cost of its liabilities – is negative. It’s a risky, dangerous stock – just the kind to turn us on.

2. Rick’s Cabaret (RICK) - Closing Price 2/3: $10.25

If you can’t find a woman to wear lingerie from Frederick’s, head over to Rick’s Cabaret. (And don’t check that website at work either. Or at home, unless you know how to clear your browser history. The old “I was just checking the Investor Relations section” line won’t work on your wife.)
Rick’s runs uh, gentlemen’s establishments, across the country. There’s probably one near you — they’re even expanding into Omaha. (Insert your own Warren Buffett joke here….)

Nudity aside, Rick’s actually looks like a Buffett stock; the company trades just over 1x sales, a bit over book, and less than 8 times forward earnings. But you don’t need numbers to make your case; how can you go wrong investing your nest egg in a strip club? Your buddies will LOVE it. If Rick’s goes bankrupt, you’ll have a great story to tell at the state-run assisted living home. And you can tell it every day, because most of your fellow residents will have already forgotten that you told it at lunch the day before.

If that’s not enough, the company throws parties at its New York strip club in conjunction with its earnings reports. According to Rick’s, “the popular Due Diligence Ball gives investors the chance to see the company’s operations first-hand.” So write off that lap dance – you’re just trying to ensure the health of your children’s college fund.

3. Boston Beer Company (SAM) - Closing Price 2/3: $105.66

What, you thought we’d put Anheuser-Busch InBev (BUD) in our portfolio? You don’t drink that swill, do you? Start your night off right with a Sammy. Remember, the company told you that “it’s always a good decision.” You can’t say that about any of the other stocks in this portfolio.
SAM is debt-free, and trading at about 25x forward earnings. Yikes; it’s expensive. But we’ve got taste, and we’re sticking with Sam Adams, even if it is a little pricier than Budweiser or Molson Coors (TAP). (And try their blackberry-flavored beer for breakfast. It goes great with a Pop-Tart.)

4. Brown-Forman (BF-B) - Closing Price 2/3: $84.12

Let’s be honest — you can’t drink Sammy all night just by himself. He gets lonely. So why not let him party with Brown-Forman, maker of Jack Daniel’s whiskey, Finlandia vodka, and Don Eduardo tequila? They all go great together.
BF is at a 52-week high at $84.12, which of course means it is a must-buy. You don’t get in the way of a high-flying bender – just jump on, hang on tight, and enjoy the ride until the inevitable crash. No hedging, please.

5. Imperial Tobacco (IMT.L) - Closing Price 2/3: £2,389.00

When you do crash off your Brown-Forman ride, and you’re hungover the next morning, you can get some Phillies cigars from Altadis USA, a subsidiary of England’s Imperial Tobacco. And then you can, well, some people have told me that they…never mind.
IMT.L is trading at 13.5x earnings and sports a 3.98% dividend yield, which provides enough cash to pay for the Slim Jims and Orange Crush that go so well with that smooth Phillies taste. Research analysts are extremely bullish on the stock; with the market up 7% so far in 2012 despite the oncoming collapse of the European financial system, their opinions appear to be due to first-hand experience.

6. Abbott Laboratories (ABT) - Closing Price 2/3: $55.00

If you don’t want to make the effort to alter your cigars, or you don’t know how (check YouTube, I’m sure there’s 800 how-to videos using “oregano”), you can just take a few Vicodin, from the good people at Abbott Laboratories. They cure not only hangovers but severed limbs, marital woes, and bankruptcy. I would not recommend this strategy if you are a forklift operator or a hand surgeon, but if you’re an investment advisor it really doesn’t matter. It’ll take a lot more than Vicodin to put a $100 billion valuation on Facebook.
Abbott is trading at just 11 times forward earnings with a 3.6% dividend yield. And if you buy enough stock they might throw in a free prescription pad.

7. Google (GOOG) - Closing Price 2/3: $596.33

You don’t use Yahoo! to search “Angelina Jolie topless with donkey”, do you? Get with the times, man.
Google is trading for just about 10x forward earnings when backing out its billions in cash. So what if the Android platform has more bugs than a Louisiana swamp? (Did you check the link for Jolie and the donkey? You did, didn’t you? If you did, you need this portfolio.)

8. Wynn Gaming (WYNN) - Closing Price 2/3: $114.98

Wynn Gaming runs, of course, the Wynn in Las Vegas (and another location in Macau). Nothing says fun self-destruction like doubling down on 13 in the high-stakes room. At least the drinks are free. Plus, they have a freaking Ferrari dealership on site! WYNN reported disappointing fourth quarter earnings on Thursday, and finished the week down 3.4%, right after some idiot stock columnist recommended the stock as a buy. That’s all right. We’re down a little bit, but we’ll get it back. Just wait until the Asian dealers leave and it will turn around. I promise. I can feel it.

9. Sturm, Ruger (RGR) and Smith & Wesson (SWHC) - Closing Price 2/3: $42.87 (RGR), $5.32 (SWHC)

Yes, we’re including both gun manufacturers in our portfolio. Why? Because you can never have too many guns. We’ve got beer, booze, gambling, and women. Guns make all those things better. (Watch a pretty girl shoot a shotgun some time. Hell, watch an ugly girl shoot a shotgun. “Beer goggles” have nothing on heavy-duty firearms.) SWHC is at a 52-week high, is losing money, and has a small amount of net debt. RGR actually pays a small dividend, is solidly profitable and is also trading at its 52-week high. (The market appears to have anticipated that the 2012 election will drive many Americans to purchase additional firearms). But owning Smith & Wesson sounds much cooler. Dirty Harry didn’t carry a Ruger now, did he?

10. Denny’s (DENN) - Closing Price 2/3: $4.44

Because this is where great nights end: at Denny’s at 4 in the morning, trying to figure out what the heck just happened, where all your money went, and wondering what time the waitress gets off work and if the goiter will bother you when you turn the lights out. Nothing caps off a self-destructive night like Denny’s; for God’s sake, these people put bacon on a sundae! DENN is trading at only 12 times forward earnings, with a price-to-sales ratio below 0.9. Yes, sales are declining, but that’s only because their customers are dying from bacon-induced heart attacks. We don’t have to worry about that – we’re going to start exercising on Thursday, as soon as our hangover is finished. And, this time we mean it.

Additional disclosure: Please don’t take anything in this article as serious investing advice. Should you choose to invest in any of these stocks, however, rest assured that I will do my part in helping these companies meet or exceed their earnings forecasts.