Like clockwork, gun stocks are rallying this year. This is an election year and polls suggest Democrats could easily take the White House and a Senate majority. This is nothing new. Gun stocks jumped in 2018 when it became clear Democrats would take the House. And, it occurred in 2012 when President Obama would win reelection.
This year, however, there’s more to the gun equity rally. Last month, gun stocks surged as protests in the wake of police killing of George Floyd turned violent in some parts of the U.S.
That rally extended into July as protests in the Pacific Northwest intensified. Perhaps providing an impetus for new gun purchases in places like Seattle, Police Chief Carmen Best recently told business owners and residents the force’s hands are tied when it comes to using deadly force to disperse large, violent crowds.
Politics aside, there’s no denying gun stocks are soaring. For investors that don’t have moral qualms about these assets, here are three companies to consider.
Smith & Wesson (SWBI)
Smith & Wesson is one of the most iconic names in the firearms business, having been around for nearly 170 years. Formerly known as American Outdoor Brands, the company took the Smith & Wesson name in June. It makes firearms under the Smith & Wesson, M&P, Performance Center, Thompson/Center Arms, and Gemtech brands.
SWBI stock epitomizes the impact of the scenarios outlined at the start of this piece: protests and gun owners’ fears that a “blue wave” is a threat to their Second Amendment rights. The stock has more than quadrupled off March lows and more than doubled on a year-to-date basis.
As noted earlier, gun equities have a history of rallying in advance of what owners and investors perceive as unfavorable political outcomes. That’s happening again this year. But investors need to be mindful the other part of that historical equation. Regardless of electoral outcomes, gun stocks typically give back their pre-election gains.
The aforementioned protests could mean the 2020 post-election landscape turns out differently for gun stocks and some data points indicate that could be true. For example, the FBI said 3.9 million background checks for legitimate firearms purchases were conducted in June. This figure tops the previous record of 3.7 million performed in March.
Sturm Ruger (RGR)
This is how intense the upside for some gun equities has been this year: Sturm Ruger more than doubled off the March lows, is higher by about 66% year-to-date and it’s considered a laggard in the space. Like rival Smith & Wesson, RGR stock is buoyed by catalysts beyond the usual election jitters, including expansion of international opportunities for domestic gun manufacturers’ wares.
Under a rules change by the Trump administration, companies like Ruger will be able to export 20% more firearms. This change “will officially move oversight of commercial firearm exports from the State Department to the Commerce Department, where export licenses will be much easier to obtain,” reports Reuters.
Here are three other things to consider about Ruger that are relevant. At the end of the first quarter, the company had $188 million in cash on hand, an impressive tally for a firm with a market capitalization of $1.37 billion. Second, it’s a steady dividend payer, though the quarterly payout fluctuates because the company delivers the dividend as a percentage of net income. Third, Ruger currently has no debt to service.
Vista Outdoor (VSTO)
Vista Outdoor isn’t a gun maker like Ruger or Smith & Wesson, but the company is intimately tied to the industry as an ammunition manufacturer. As highlighted by the fact that VSTO stock more than doubled this year, making ammo is a fine place to be when guns are flying off the shelves because that also means ammo is flying off the shelves.
Gun stores across the country are facing an ammunition inventory crisis with some shop owners saying that condition could persist well into 2021. For Vista Outdoor, this is economics 101: the company is making a product where demand is outstripping supply.
What makes Vista Outdoor potentially more appealing to a broader swath of investors is that it doesn’t make guns. And, there’s more to the business than manufacturing ammunition. The company’s outdoor products segment produces helmets, goggles, and accessories for cycling and action sports, golf gadgets, outdoor grills and other items for camping and other outdoor activities.
The outdoor product lineup makes Vista Outdoor a play on recreation and travel in the novel coronavirus environment. Archery, camping and rafting are ideal avenues for stir-crazy Americans to get out of the house while maintaining social-distancing measures.
Think it’s a stretch to say Vista is a Covid-19 play? Think again. Data confirm that in developed countries throughout the world, campsite bookings are surging due in large part to the pandemic.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.