It’s often said that the two biggest motivators in the investing game are greed and fear … and when it comes to stocks in the gun space, you get these two hits in one sector.
Greed, of course, is the pursuit of higher profits, and for that the big three firearm stocks — gun makers Smith & Wesson (NASDAQ:SWHC) and Sturm Ruger & Co. (NYSE:RGR), and guns, ammo and outdoor sports retailer Cabela’s (NYSE:CAB) — all have hit the bullseye.
Each of these stocks is up big over the past two years, with SWHC and RGR soaring over 170% each, and CAB shares spiking 135%. So far this year, the stocks have seen big gains as well. SWHC came out of the barrel with an 11% move higher, while RGR has jumped out the 2013 gate with a 21% win. Finally, CAB has been the biggest winner, with an incredible surge of more than 48% in about 12 weeks.
As gun stocks continue to post big upside, understanding the greed motivator is easy. When it comes to the fear factor, however, there are a host of exogenous factors driving the these stocks — as well as each company’s respective sales and earnings — higher and higher.
And the main one is fear of a curtailment of 2nd Amendment rights.
The despicable murders of 26 people — 20 of whom were children — at the Sandy Hook Elementary School in Newtown, Conn. in December shook the country to its core with its brutality and violence. The horrific act caused the nation to reflect on how a tragedy like this could happen … and what we all can do collectively to try to prevent this type of event from ever happening again.
The answer for many is to implement new, much stricter, gun laws. Indeed, in the aftermath of the Sandy Hook shootings, fear of stricter gun laws, particularly on so-called assault weapons, sent gun stocks plummeting. The charts below of SWHC, RGR and CAB clearly show the sell-off.
The selling in the space was a direct consequence of the chorus of public officials calling for stricter gun laws in the wake of the Sandy Hook tragedy. Since that December sell-off, however, gun stocks have seen a major move higher. Part of this is likely due to record gun sales across the nation in the wake of the gun control chatter. News reports of big lines to get into gun shows, empty shelves at gun stores and record number of new gun registrations have kept the revenues of these stocks pouring in.
That’s sent investors back full-bore into gun stocks.
For Smith & Wesson, the gun buying frenzy resulted in the company seeing its earnings more than triple for the quarter ending Jan. 31. The company also saw a 39% spike in sales during that time period. Despite increasing production capacity, Smith & Wesson said it still failed to keep up with burgeoning customer demand.
The stellar quarter caused Smith to raise its full-year earnings forecast to between 38 cents and 40 cents per share in the current quarter and up to $1.19 per share for the full year. Analysts were predicting earnings of just 30 cents for the quarter and $1.06 per share for the year.
Sturm Ruger reported its most recent quarterly earnings in late February and, like Smith, the numbers were outstanding. The company saw an EPS spike of 85% year-over-year, along with a revenue increase of 52%.
Then, on Tuesday, Cabela’s shares vaulted 13% to a new 52-week high as the specialty retailer raised its guidance ahead of its annual investor day. The company said it now expects Q1 same-store sales to rise at a rate in the high teens. Moreover, Cabela’s now expects EPS to come in 10 cents to 15 cents above the current 47-cent-per-share consensus Street estimate.
To be certain, investor greed for profits is causing the continued rush into gun stocks. Moreover, fear of not being able to buy the kinds of guns you currently can buy is driving consumers into gun stores … and driving the top and bottom lines of gun companies higher.
As long as this greed-and-fear cocktail remains locked and loaded, look for gun stocks to keep firing higher.
At the time of this writing, Jim Woods did own a position in any of the aforementioned securities.