Gun control is one of the most contentious issues in American politics today, as it pits the rights of law-abiding citizens against legitimate concerns around public safety. But following recent mass shootings, the Biden administration has had no choice but to act in the face of a growing public safety crisis. That policy action means gun stocks will be under the microscope for investors.
The executive order focuses on three main concerns related to the firearms industry — the proliferation of “ghost guns,” the clarification of policies related to stabilizing braces and red flag legislation. The latter proposes that family members or law enforcement should be allowed to “to petition for a court order temporarily barring people in crisis from accessing firearms.” Though not directly related to gun stocks, red flag laws are problematic for individual liberties.
On the matters more directly connected to the firearms industry, legislation against ghost guns would theoretically be helpful to gunmakers by directing revenue streams toward legitimate businesses. Therefore, the stabilizing brace issue is the one that’s most problematic for gun stocks.
According to the Bureau of Alcohol, Tobacco, Firearms, and Explosives, the legality of stabilizing braces is established on a case-by-case basis. Typically, as long as they serve their purpose — allow the user to fire a high-caliber pistol one handed with greater control — they’re fine. Where stabilizing braces get in trouble, though, is when shooters shoulder the brace, thereby converting the pistol into a short-barreled rifle (SBR), a major no-no.
Of course, the dilemma is that high-powered handguns — such as AR-15 pistols — are very popular because they dance around a thin line between a pistol and an SBR. Essentially, the ATF allows you to own an AR pistol, so long as you don’t abuse its functionality. The Biden administration appears to want to close that loophole, which could impact gun sales.
Here are 7 gun stocks to watch as Washington weighs in:
- Smith & Wesson Brands (NASDAQ:SWBI)
- Sturm Ruger (NYSE:RGR)
- Big 5 Sporting Goods (NASDAQ:BGFV)
- Vista Outdoor (NYSE:VSTO)
- Olin Corporation (NYSE:OLN)
- Ammo (NASDAQ:POWW)
- Axon Enterprise (NASDAQ:AXON)
Still, while Second Amendment advocates may fret over their rights, this is cynically a great time for the firearms industry. So long as the fear of restrictions hangs over the personal defense sector, these gun stocks and related investments should perform very well — at least until the next election.
Smith & Wesson Brands (SWBI)
One of the best-known — and let’s face it, notorious in some circles — gun stocks is Smith & Wesson. From the actual guns themselves to their references in popular culture, SWBI stock is now one of only two pure-play firearm manufacturing investments. Under normal circumstances, this gives shares an air of controversy. Today, the narrative is a bit cloudier.
That’s because gun stocks are incredibly relevant. When the novel coronavirus pandemic first breached our borders, it was only a matter of time before everyday folks rushed to their local gun shops. First, it takes an average of 10 minutes for police to respond to emergencies. During a national crisis, that’s not going to cut it. Second, the erosion of social trust incentivizes everybody to pack some heat.
Moreover, Smith & Wesson builds AR-15 pistols. Thus, any legislation that will eliminate this type of firearm will see sales explode higher. Not that I’m going to run out and pick up one for myself, but such pistols could end up being very valuable near-term investments.
Currently, SWBI stock is trading sideways. I don’t expect that to last, not when people already have enough reason to load up on its underlying products.
Sturm Ruger (RGR)
The other pure-play publicly traded firearms company, Sturm Ruger may be on the cusp of another rally. As the manufacturer of the AR-556 semiautomatic “sporter” rifle — don’t ever call this gun an assault rifle unless you want a barrage of hate mail — Sturm Ruger carries serious clout among shooting sports enthusiasts. But RGR stock might fly because the company also makes a pistol version.
If you look at the linked product, you can see why the legal world is up in arms about stabilizing braces. Technically, you’re supposed to fire the AR-556 Pistol with your two hands unsupported by any other part of your body. The brace wraps around your arm for greater control and stability. But physically — though not legally — one could shoulder the butt-end of the brace, and therefore treat it like an SBR.
Let me keep everyone’s lawyers happy: you should absolutely, positively never do this. If an ATF agent catches you shouldering a pistol brace, you’d be looking at serious time.
Still, they’re popular because they look “cool.” Therefore, I see both pure-play gun stocks soaring on their AR pistol sales.
Big 5 Sporting Goods (BGFV)
While the novel coronavirus pandemic has been a net negative for most businesses, gun stocks have been cynical beneficiaries. But Big 5 Sporting Goods in particular must be thanking their lucky stars.
Prior to the pandemic, BGFV stock was on life support and many folks were talking about bankruptcy. With millennials taking over the consumer landscape, sporting goods stores generally weren’t performing like they used to. Companies that specialize in outdoor activities have had trouble reaching younger consumers. And with digital entertainment like e-sports replacing physical sports, Big 5 and others had serious challenges.
But unlike its rivals, Big 5 is also a gun stock, thanks to its sales of shotguns and hunting rifles. Suddenly, this segment of Big 5’s dusty forgotten stores became the hottest commodity. With President Biden threatening to crack down on guns, I anticipate BGFV stock moving higher, even if his proposals don’t really impact hunting-specific firearms.
Vista Outdoor (VSTO)
I imagine that if Vista Outdoor had a crystal ball, the company wouldn’t sell its Savage Arms and Stevens firearms brands, especially for “$158 million and another $12 million in notes payable in five years.” Sure, I suppose the deal made sense at the time, around the middle of 2019. But if it waited just a little bit longer, the valuation of these two brands would likely have blown through the roof.
To be sure, Savage and Stevens don’t make the tactical semiauto rifles many buyers gravitate toward. However, when you’re looking for self-defense solutions, anything will do. Furthermore, panicked buying incentivizes hunters who actually do buy these brands for their intended reasons to stock up.
Still, it’s not a total loss for VSTO stock. Far from it. In fact, because the underlying company wisely held onto its ammunition business, it’s done very well for itself. And as firearms sales pick up and send gun stocks higher, this naturally increases the demand for ammo. Indeed, the premium for bullets is at ridiculous levels, which bodes well for Vista ahead of potential restrictive gun laws.
Olin Corporation (OLN)
Gun stocks are a somewhat controversial investing choice. If you want to play gun stocks more discreetly, you might turn to Olin Corporation.
On the surface, Olin is a chemicals company, which presents valuable applications across multiple industries. But if you think it’s really strange that a boring chemicals play like OLN stock generates year-to-date returns of nearly 64%, you’d be right. While its core business is a critical one, many investors are keying in on its Winchester brand of ammunition.
If memory serves me correctly, Winchester ammo was a cut above other brands of equivalent products — and the pricing reflected that. The beautiful thing today for OLN stock is that nobody cares about the price.
Now, it’s all about supply or lack thereof. It’s terrible but Olin will likely continue benefitting until the panic buying ceases, which could take years.
There’s no denying that Ammo is one of the riskiest gun stocks you can buy. At the beginning of 2020, POWW stock was trading hands for a little over a buck. But as the coronavirus pandemic turned into a crisis of social unrest and political division, shares began picking up in a hurry.
Later, the ammo shortage dilemma has contributed to an unprecedented surge in POWW stock. For the industry as a whole, the supply-demand dynamic is a mixed bag. Sure, people are rushing to the gun store to grab whatever firearms they can get. Invariably, this leads to an increase in ammo sales — one without the other isn’t really effective.
The problem, though, is that many local gun retailers are desperate for supply. Unfortunately, this causes a situation where retailers buy ammo from whatever source at whatever price, leading to even higher premiums for customers.
I’m not really sure what to make of this situation other than to say that for now, people are buying like there’s no tomorrow. Thus, POWW could have a surprisingly long upside pathway.
Axon Enterprise (AXON)
Manufacturer of non-lethal self-defense tools for law enforcement officers and civilians Axon Enterprise, while not technically belong to a list of gun stocks, is still relevant for the current environment. For one thing, Axon’s tasers are self-contained weapons: once you buy the taser, you’re ready to go, no need for ammunition.
Second, not everyone wants to own a firearm. It’s called the right to bear arms, not the obligation to. In the heat of the moment that once you fire a bullet at someone, you can’t take it back. Just the legal ramifications involved with shootings can be a nightmare, even if you were totally in the right to deploy lethal force.
Of course, there’s also the issue with accidental shootings. In 2018, accidental gun deaths numbered 458 in the U.S. With options like Axon tasers, you can eliminate so many headaches and potential tragedy, which is a huge positive for AXON stock.
Most importantly, you can effectively protect yourself with the company’s products and they feature far less restrictive regulations than firearms. It’s a win-win, which is why you should also keep tabs on AXON stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.