With President Joe Biden in the White House, there’s concern he could enact legislation to potentially curb the Second Amendment. That will have an impact on gun stocks.
In fact, he’s already said he would ban “assault weapons, ban high-capacity magazines and introduce universal background checks in a bid to confront what he called America’s ‘gun violence epidemic,’” as reported by Newsweek contributor David Brennan.
In addition, according to Daily Mail, the new administration could repeal the Protection of Lawful Commerce in Arms Act, which was passed in 2005. It was set up to shield gun makers from wrongful death lawsuits. If that were to be successfully repealed, it could do quite a bit of damage to the industry and to gun stocks.
Fear of gun control is part of the reason for record-breaking gun background checks in 2020. In fact, the year finished with 21 million checks. Nearly 8.4 million people bought a gun for the first time. In addition, “wave upon wave of uncertainty and concern [are] driving firearm demand,” said Jurgen Brauer, chief economist at Small Arms Analytics and Forecasting.
With that, it’s come as no surprise gun stocks have been on fire, including:
- Smith & Wesson Brands (NASDAQ:SWBI)
- Sturm, Ruger & Co. (NYSE:RGR)
- Vista Outdoor (NYSE:VSTO)
- American Outdoor Brands (NASDAQ:AOUT)
- Ammo Inc. (NASDAQ:POWW)
Gun Stocks to Buy: Smith & Wesson Brands (SWBI)
Since bottoming out at $4.42 in March 2020, the SWBI stock exploded to a high of $23.57 in early 2021. In recent days, On a recent pullback to $16.50, I’d use the weakness as opportunity, especially with guns flying off the shelves.
The company’s second quarter earnings showed that gun sales more than doubled year over year, with expanding margins.
In fact, net sales were $248.7 million, as compared to $113.7 million year over year. Gross margins were up to 40.6%, as compared to 28.4% year over year, as well. Quarterly GAAP income was $49.1 million, or 87 cents per diluted share from $343,000, or a penny per diluted share year over year. It doesn’t hurt that SWBI authorized a $50 million stock buyback plan.
Sturm, Ruger & Co. (RGR)
Investors have been just as fired up over Sturm, Ruger. Since bottoming out at $35.54, it ran to a high of $84.41. The stock has since pulled back to $62.80 and could soon be a buy on weakness. I’d wait to see if RGR can hold current support before taking a position.
Sturm, Ruger also had impressive earnings.
In late October, it reported net sales of $145.7 million and diluted EPS of $1.39, as compared with net sales of $95 million, and diluted EPS of 27 cents year over year. For the nine months ending in September, net sales were $399.6 million diluted EPS of $3.31, as compared to $305.4 million and diluted EPS of $1.37 year over year.
“As a result of this unprecedented demand, inventories remained significantly reduced at all levels in the channel during the third quarter,” CEO Christopher J. Kilroy said.
Vista Outdoor (VSTO)
Vista Outdoor roared from a low of about $6 to $29.43 and could see $35 soon.
In late 2020, Cowen analyst Gautam Khanna upgraded the VSTO stock to an “outperform” rating with a price target of $33. He noted at the time the stock is being driven by outdoor recreation, the pandemic and Biden’s presidency. Earnings were also impressive here, too.
While we’ll hear more about third quarter earnings on Feb. 4, we do know second quarter earnings were solid. Sales were up 29% to $575 million. Gross profits were up 79% to $162 million. Operating expenses were 15% of sales and improved by 483 basis points.
American Outdoor Brands (AOUT)
Locked and loaded American Outdoor Brands could have another solid year ahead of it.
Since late 2020, the AOUT stock ran from about $14 to $20.68. If it can break above double top resistance, it could test $23 in the near term. That’s a strong possibility with gun sales likely to improve.
In its second quarter, net sales were up 65.7% year over year to $79.1 million. Gross margins improved by 690 basis points to 46.9%.
Ammo Inc. (POWW)
Ammunition stock Ammo rocketed from a low of about $2.02 to a recent high of $8.98. At the moment, the stock is technically overbought. Let it come down a bit and find support before taking a position here.
Growth has been solid here, too. The company just provided Q4 guidance which reflects 317% year over year revenue growth. This is now the fourth straight quarter of year-over-year, triple-digit growth, according to a recent press release.
Ammo expects for demand to only grow with the recent outcome of U.S. Senate elections, and political uncertainty. Ammo also agreed to buy back 1 million shares for $1.5 million in early January.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article. Ian Cooper, an InvestorPlace.com contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.