From time to time we at StreetAuthority propose investments in “controversial” stocks that many of our readers may feel uneasy about. I’m talking about so-called “sin” stocks like tobacco, gambling and the like. 

Make no mistake, these companies are often profitable for investors. Studies show that these stocks often beat the market. And it’s our job to identify the most profitable opportunities out there — no matter what they are. 

#-ad_banner-#​But we always try to make it clear that if you’re not comfortable investing in these companies, that’s perfectly fine. 

Today, however, I’d like to turn that idea on its head and talk about an investment that helps fight the sin.

In her May issue of Stock of The Month, Amy Calistri wrote about an unsettling trend regarding heroin use in the United States.

Specifically, Amy’s research found that the number of heroin users in the U.S. is rising… and quickly.

               On April 29, Fletcher Allen Health Care admitted 8 patients for heroin overdoses. In other words, it was an average day in the emergency room. The hospital is not located in Detroit, Camden, Baltimore or Chicago — the cities we sometimes associate with high crime and drug use. Fletch Allen Health Care is located in Burlington, Vermont.

In January, Vermont Governor Peter Shumlin spent his whole State of the State Address on the heroin crisis crippling his state. In 2013, twice as many people died in Vermont from heroin overdoses as did in 2012. And Vermont is not alone.

In Missouri, heroin overdoses increased 175% between 2007 and 2010. Heroin overdose deaths have tripled in Texas over the past 15 years. Heroin-related deaths rose 48% in Connecticut from 2012 to 2013.

It is estimated that between 2007 and 2012, the number of heroin users in the United States grew 79%

So why is heroin becoming so popular?

The answer, while grim, is simple. As states have started cracking down on “pill mills” — or facilities disguised as medical clinics that are really in the business of providing opioids to non-medical users — prices for illegally obtained prescription drugs like Oxycontin and Vicodin have started to rise. As a result, more and more users are switching to heroin as an alternative.

At the same time, the flow of “cheap” Mexican heroin into the U.S. has soared. It’s estimated that heroin production in Mexico grew from 6.8 metric tonnes in 2002 to 50 metric tonnes in 2011. The supply increase has not only augmented heroin availability, but also dramatically reduced the drug’s price.

This alarming trend led Amy to recommend prescription drug manufacturer Hospira (NYSE: HSP)  to her Stock of The Month subscribers in May. The company is one of the few to produce the drug Naloxone (brand name Narcan), which is used by addicts and treatment centers the world over to reverse the effects of opiate use.

It turns out Amy’s research was spot on. On July 30, Hospira released its full financial results for second quarter 2014, where the company managed to smash earnings estimates by a whopping 29% — reporting earnings per share of $0.78 vs. expectations of $0.56. Much of the company’s success was attributable to growing sales volumes from specialty injectable pharmaceutical products like Naloxone.

After the announcement, Hospira shares jumped 8.3%…

While HSP gained 15% for Amy and her followers, she still sees upside in the stock.

Even more — there are tailwinds (other than rising heroine usage) that should ramp up demand for Naloxane. 

First on the list: government support. 

To combat the alarming rise in drug overdoses, state and local governments are taking bold steps to put Naloxane in the hands of everyone from first responders to good Samaritans. 

Even the federal government is getting involved. On April 16, U.S. Attorney General Eric Holder said, “Today, I’m calling on all first responders — including state and local law enforcement agencies — to train and equip their men and women on the front lines to use the overdose-reversal drug known as Naloxone.”

Seventeen states have already passed legislation to expand the use and access of Naloxone, and the list is growing. This should provide a nice boost Hospira’s profits.

Second: monopolistic pricing power.

A number of manufacturers stopped producing Naloxone over the years as they pared down their non-core holdings. Demand for the drug had been low for a long time. And as a generic drug, it had little pricing power. But that’s changed.

In 2008 — the same year drug overdoses surpassed auto fatalities as the leading cause of accidental death in the United States — Hospira raised the price of Narcan by 1,100%.

Of course Narcan isn’t Hospira’s only drug. In fact, as of March 31, Hospira had 68 generic compounds in its development pipeline. 

For the quarter ending in June, Hospira racked up over $1.14 billion in revenue, up 10.7% from the same period a year earlier. Net income more than doubled to $0.42 per share. The report surprised Wall Street. But Amy wasn’t surprised — Hospira has beaten Wall Street expectations each of the past five reporting periods.

Risks to Consider: Generic manufacturers have less legal liability regarding drug side effects. They do, however, incur higher costs and risks from patent-related lawsuits. Drug developers work hard to keep extending their patent protection by making minor modifications and form factors. Generic manufacturers often have to take them to court to challenge the validity of their patent claims.  

Action to Take –> While Amy recommended HSP back in May, the story’s only gotten stronger coming off a great 2nd quarter. Despite a 15% gain so far, the stock is still trading below her $63 target price. 

P.S. What if your portfolio had an 85% win rate and clocked annualized returns as high as 510% — and you only had to spend 12 minutes per month managing it? That’s what Amy Calistri’s Stock of the Month subscribers are enjoying right now each and every month. Go here to see how.