Although we may never know, the core idea behind the Golden State’s controversial Proposition 63 that was passed on Nov. 8, 2016 may have come from a comedian. The irony for Second Amendment advocates is that, to them, Prop 63 is nothing but a sad joke.
Indeed, several law enforcement agencies voiced opposition to the bill, which they see as bureaucratic waste. Should Prop 63 not be challenged, however, ammo stocks could be the hottest ticket of 2017.
Rather than go through the boring details, I’ll let “Bigger & Blacker” Chris Rock take it away.
“You don’t need no gun control, you know what you need? We need some bullet control. Men, we need to control the bullets, that’s right. I think all bullets should cost five thousand dollars… five thousand dollars per bullet… You know why? Cause if a bullet cost five thousand dollars there would be no more innocent bystanders.”
Rock further expounds on his point, but InvestorPlace is a family-friendly publisher! With that said, Prop 63 is the heart behind that joke told nearly two decades ago. What rankles California shooters is the fact that, starting in 2018, ammunition sales will have to go through licensed vendors. That involves onerous action items, such as background checks, that never existed before. Additionally, ammo purchased online will first have to be shipped to licensed entities before physical delivery is made.
That’s going to tick off more than a few gun owners, many of whom are particularly prickly about their privacy. At the same time, this is an incredible opportunity for ammo stocks — whether you’re pro gun or not.
California has already suffered through an unnecessary and ridiculous “assault weapons” ban. Long story short, this new law transformed previously legal semi-automatic rifles into a class of “dangerous” firearms. To invoke a grandfather clause to beat the ban, Californians bum-rushed gun stores en masse. Last month, the FBI recorded 93,224 background checks conducted for rifles (long guns) — that’s a massive 91% year-over-year increase!
In fact, last month, no other state had as many rifles purchased. To put that into perspective, California sales beat out Texas — Texas! — by a margin of nearly 35%. I think it’s more than a reasonable assumption that ammo stocks will see a big boost, especially near year’s end. The Prop 63 restrictions are a paradigm shift for gun owners, and it doesn’t take much to open their wallets.
Here are three ammo stocks to buy ahead of a potential shortage.
Ammo Stocks to Buy: Olin Corporation (OLN)
If you speculated on the chemical manufacturer at that time, congratulations! You’re in the money bigly!
But, what I love about OLN is that it’s also considered one of the few available ammo stocks in the markets. And, Olin owns a great one — Winchester. Anyone who knows anything about firearms is familiar with the Winchester name.
It’s especially popular among shooters because of its broad product offering. For less-expensive loads for target practice to premium-quality hunting rounds, Winchester has it all. When ammo starts flying off the shelves, OLN may start flying in the markets.
We saw a tiny bit of the potential when President Trump was first elected. OLN stock jumped over 4% the day after Republicans swept through a commanding victory. Since then, shares have enjoyed a remarkable climb to nearly 19%. OLN appears locked into a steady, bullish trend channel that’s been forming since mid-September, so I don’t expect much volatility.
Indeed, the California bullet control bill could shoot OLN ever higher due to the popularity of the Winchester brand.
Ammo Stocks to Buy: Vista Outdoor (VSTO)
What’s interesting about VSTO is that the company was formed as a spin-off of Orbital ATK Inc (NYSE:OA). Furthermore, OA is a specialist in the 5.56x45mm ammo caliber, which is chambered by many AR15 rifles.
Yes, I’m talking about those spooky, evil implementations that keep leftist policymakers up at night. For gun and ammo stocks, a little notoriety doesn’t hurt — and could likely boost sales.
Admittedly, it’s a little hard to sell investors on VSTO due to the sharp losses it incurred earlier this month. The markets panicked when VSTO revealed that it will record a “goodwill impairment charge” on its books. However, management insists that it’s optimistic about its long-term growth. Obviously, Wall Street doesn’t see it that way, but it should.
Here’s the bottom line — a lot of guns have been sold. Owners will eventually want to shoot them. When they do, people will realize that VSTO is the goldmine of ammo stocks.
Ammo Stocks to Buy: Sturm Ruger (RGR)
Curiously, the number of gun owners has actually declined over the past two decades. Naturally, this means that each gun owner owns more guns than ever before. How many? Try eight per household!
In a typical nuclear family, Mom, Dad, Johnny and Sally could potentially have a rifle, and a sidearm — you know, just in case the stuff gets too thick. That’s why I don’t question Sturm Ruger & Company Inc’s (NYSE:RGR) foray into ammunition. In fact, I wish RGR all the best. I wouldn’t mind it at all if RGR gave ammo stocks all the competition they can handle.
Here’s the thing — there is so much demand in America that all the ammo stocks operating beyond capacity couldn’t possibly fill it. At 265 million guns, we’re talking an 83% market penetration! That also means we have more guns than Mexico and Japan combined have people.
Sure, the RGR ammo brands are overpriced, premium products. But, when a shortage hits, or a political crisis like Prop 63 explodes, desperate buyers will buy anything.
With any market opportunity, there’s always the risk of hype. I would argue, however, that ammo stocks — even hybrid ones like RGR — live up to it.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.