Should you buy this beaten-up sin stock over Neil Woodford-favourite Imperial Brands plc?

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British American Tobacco cigarette making equipment

From a long-term perspective, it's hard to deny that FTSE 100 constituent ImperialBrands(LSE: IMB) has been a remarkably good investment. Nevertheless, a growing number of market participants appear to have jettisoned the stock from their portfolios over the second half of 2017. Why?

One reason is surely the fact that recent results have been somewhat disappointing. Earlier this month the £30bn cap reported that revenue and profits had both dipped over the last financial year (after taking foreign exchange fluctuations into account).

Since judging a company on just one set of results feels decidedly un-Foolish, a more pertinent question to ask is: has Imperial's story has really changed?

One person who doesn't think so is star fund manager Neil Woodford. Reporting to holders of his Equity Income Fund just over a week ago, Woodford stated his belief that Imperial's investment case simply doesn't fit with the "current market zeitgeist". 

Nevertheless, he remains convinced that the business "should deliver attractive and sustainable long-term growth" for its owners. The fact that Imperial has never delivered a negative return on a five-year rolling basis indicates, in his view, that fundamentals "are all that matter" over longer timeframes.

With this kind of bullish talk, it's perhaps unsurprising to learn that Woodford recently added to his position in the company. Taking into account the fact that its shares are now valued at just 12 times earnings for the new financial year and come with a stonking 6% dividend yield, I can't say I blame him.

That's not to say that Imperial is the only 'sin stock' that warrants further investigation, of course.

Run to the Hill?

Bookmaker WilliamHill(LSE: WMH) is another option for those comfortable with investing in businesses others may frown upon.

Although last week's trading update -- in which the company revealed it was on track to meet expectations for the year -- hardly moved the share price, one could argue that its owners have already enjoyed a decent run of form since the end of October (+16%).

I'll admit to having a love/hate relationship with the £2.4bn cap. Once a shareholder, I sold my position in the company based on an apparent lack of activity on the part of management at a time when rivals were merging and/or gaining market share. Fortunately, that turned out to be a good call when the shares dived from around the 400p mark to as low as 250p by July 2016.

Since then, the prospect of new legislation on fixed odds betting terminals has weighed heavily on the industry and will probably continue to do so until a final decision is made as to how much the maximum stake is set to be cut by. If it's reduced to just £2, then William Hill's share price could easily fall back.

Notwithstanding this, with shares trading at just 12 times forecast earnings for the current financial year, a lot of negativity is arguably already priced-in. William Hill's balance sheet looks in better shape compared to some rivals and its shares also come with a 4.6% yield, covered by profits (at least for now).

So, while I agree with Woodford that Imperial is still worthy of investment, I'm inclined to think that William Hill could be another decent addition to most sufficiently diversified, income-focused portfolios.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.


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