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The Cynical Stock Picker Says Buy Guns and Ammo
By Mr. ToughMoneyLove | November 11, 2008
If you are opposed to gun ownership under any circumstances, stop reading this post and move on to something else I’ve written. However, if you are OK with others owning guns and maybe want to make a little money based on knowledge of what is happening in the industry, read on.
A friend and colleague at work is a gun enthusiast and competitor. He told me last Friday today that there has been a huge increase in demand for assault rifles and other firearms since the election. This was confirmed in a report I heard on news over the weekend. Today, my colleague told me that there was a line just to get in a local gun show he attended on Saturday.
Apparently, there is substantial concern among gun advocates that the new administration will encourage Congress to pass laws making it more difficult to acquire assault rifles, high capacity ammunition magazines, certain handguns, and ammunition of certain types. As a result, firearms and particularly assault rifles (e.g., AR-15 and equivalents) are in high demand. Some folks are buying everything they can find, speculating that they will be able to resell later at a substantial premium. Gun stores have waiting lists for purchase of some models.
Mr. ToughMoneyLove is neither a gun enthusiast nor a gun opponent. Thus, the cynical “make money” part of me started thinking about an investment angle to this bit of news. (Hey, in this market you’ve got to find and use the hard truth wherever it appears.) I asked my colleague what companies would benefit most from this surge in demand. Unfortunately, the most popular brands he listed (e.g., BUSHMASTER) are owned by companies that are not publicly traded.
He did recommend two manufacturers of firearms that are publicly traded: Smith & Wesson (SWHC) and Ruger (RGR).
Smith & Wesson (SWHC) does not look to be a great buy and hold stock based on fundamentals but it has fallen 80% in the past year, with an upward move in the last week. For those of you who like to swing trade, it could be a good play while this demand surge is in the news. Also, if strong sales from this post-election demand are reflected in improved quarterly financials that are reported, the stock could bounce up then as well.
Ruger (RGR) has not fallen as dramatically as Smith & Wesson and it did show positive movement leading up to the election results. It may be another interesting swing trade for the same reasons.
For more about investing to exploit the present “gun fear” economy, Barron’s has an interesting analysis.
Finally, if ammunition demand stays high, brands like Federal will benefit. Federal is owned by Alliant Techsystems (ATK), also publicly traded. However, ATK is a more diverse defense and aerospace contractor. I don’t think that companies in this category are good buys in the near term. We can anticipate an overall decrease in government spending on weapons and space programs in the new administration.
Hard truth comes in many forms and from diverse sources, including fear. In this case, use it as you deem it consistent with your overall investment strategies.
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Topics: Investing |
November 11th, 2008 at 2:11 pm
I am so glad you explained why gun sales are going up. I was starting to get really scared.
November 11th, 2008 at 2:16 pm
Goldenrail - I was a little nervous myself when I first heard about it but it makes sense now. I think the surge will last for a month or so then die off when gun owners figure out that their world isn’t ending.