Few industries are so politically linked as firearms makers, and there’s no better way to play this dynamic than Smith & Wesson Holding Corp (SWHC).
The company had quite a beginning. Horace Smith and Daniel Wesson formed a partnership in 1852 to build the first repeating pistol that used self-contained cartridges (bullets).
But by 1854, the company was in dire straits and sold the business to a shirt maker named Oliver Winchester.
Winchester used the repeating action pistol Smith and Wesson designed to build the iconic Winchester rifle in 1866.
In 1856 Smith and Wesson gave it another go and built the world’s first modern handgun. This time they patented their cartridges, and everything else they made.
Then the Civil War came, followed by the opening of the West. The rest, as they say, is history.
The Rocky Origins of SWHC
Smith & Wesson had quite a run with classic models like the snub-nosed .38 revolver — standard issue for police for decades — and Dirty Harry’s .44 magnum. But things got a bit difficult at the turn of the century. The company was sold to UK industrial engineering firm Tomkins PLC in 1987 for more than $100 million.
But fortunes continued to erode and by 2001, Tomkins unloaded Smith & Wesson for a mere $15 million (plus $30 million in debt) to U.S.-based Saf-T-Hammer, which formed SWHC.
Since then, SWHC has seen its fortunes shift considerably. In fact, when gun control talk got heated, it got even better for SWHC. For example, according to ETF Daily News, SWHC is up more than 800% since President Obama took office.
You see, when gun control advocates look like they are going to clamp down on gun ownership, gun buyers stock up.
And we are in the perfect storm for gun control politics right now. Democrat Hillary Clinton looks like she will be running for office and one of the cornerstones of her campaign is strict gun control legislation.
What’s more, there is also an opening on the Supreme Court. The passing of Judge Antonin Scalia at an exclusive hunting resort in Texas is a pretty clear indication on where he stood on 2nd Amendment rights.
If Clinton wins the election, and the Senate won’t allow Obama to seat a replacement for Scalia, it’s very likely that gun control will be a major issue.
If Donald Trump is the Republican nominee, he may not have very long coattails and the Senate (and House) may swing to the Democrats. Again, a bad thing for gun rights advocates.
This increases the opportunity for SWHC, but it also increases the volatility. For example, the stock is off 13% from its January high and 23% from last month, but overall up 2.1% year to date. And that was simply because there was a sequential month-to-month decline in background checks for firearms purchases. That means lower gun sales.
But this is simply an opportunity to pick up SWHC at a great price. This may not be the perfect buy and hold stock, but it should be a great ride through 2016 and perhaps another four more years.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
