In a seismic blow to gun control advocates, Judge Roger Benitez, a nominee to the federal bench under former President George W. Bush, struck down California’s 32-year old assault weapons (AW) ban. Stating that the ArmaLite AR-15 represents “fairly ordinary, popular, modern rifles,” Benitez declared limiting such access to civilians unconstitutional. Naturally, this has huge implications for firearms-related stocks to buy.
First, it’s important to understand what actually changed with the introduction and recent rejection of the AW ban: fundamentally, almost nothing. Originally, California legislators worried that the AR-15’s rapidity and capacity of firepower “to kill and injure human beings” outweighed civilian rights to use the rifle for sporting and recreational purposes. The changes required to make rifles California compliant negatively affected gun stocks to buy.
But what exactly were those changes? Largely, legislators imposed hindrances to stymie either the comfort of the shooter or the ability to reload rifles with fresh magazines. Firearm proponents point to two often ignored details: first, the required cosmetic changes are easily undone with common tools, and second, AR-15s are considered no more dangerous than “standard” semiautomatic rifles firing the same caliber of ammunition (.223 caliber/5.56 mm). Oh, and AW laws needlessly thwart firearms stocks to buy.
True, you can never take the rapidity of damage inherent in firearms out of the equation. Therefore, it was inevitable that critics seized upon Benitez’s comparison of the AR-15 to a Swiss army knife. At the same time, the issue isn’t about what the AR-15 is compared to but rather the right for Americans of any state to bear arms. Benitez sided with the Constitution and thus gave a boost to gun stocks to buy.
The opposition will do everything they can to appeal this latest ruling. If so, the matter could go to the U.S. Supreme Court, where conservative justices have the decisive advantage. While I don’t want to speak too soon, it appears that the political winds are shifting favorably for firearms.
Therefore, you should watch these stocks to buy:
- Smith & Wesson Brands (NASDAQ:SWBI)
- Sturm Ruger & Company (NYSE:RGR)
- Vista Outdoor (NYSE:VSTO)
- Big 5 Sporting Goods (NASDAQ:BGFV)
- Ammo Inc (NASDAQ:POWW)
- American Outdoor Brands (NASDAQ:AOUT)
- Walmart (NYSE:WMT)
To reiterate, I don’t view the firearms sector as an immediate payday. Instead, you may want to consider a long-term position. The industry is in a good position right now, and it’s possible that California could become second amendment friendly. If so, that will bode well for gun stocks to buy and related investments.
Firearm Stocks to Buy: Smith & Wesson Brands (SWBI)
One of my favorite companies, Smith & Wesson Brands, is American manufacturing done right. Now, if only the craftsmanship and work ethic from Smith & Wesson could be applied to every other sector in the American economy, we’d be going places! In all seriousness, SWBI stock arguably has the most to gain from the long-term implications of California’s overturning of its AW ban.
Primarily, I say this because Smith & Wesson historically gained prominence for its revolvers. Even culturally, the brand is synonymous with Clint Eastwood, specifically the Dirty Harry character who wielded a .44 Magnum S&W Model 29. But since 2006, the company has pushed its marketing weight toward its M&P15 series of AR-15 rifles.
Of course, that’s a pain when you’re dealing with California’s anti-gun laws. Rather than blueprint one firearm and distribute copies to all 50 states, Smith & Wesson (and others) must expend time and resources to make sure the rifle is compliant with the Golden State’s unique laws. Failure to do so could result in huge legal problems.
As well, a less-onerous experience for gun owners could see greater interest in AR-15s. Finally, California shooters are able to enjoy the platform the way it was originally designed. That makes SWBI one of the top stocks to buy on the shifting legal narrative.
Sturm Ruger & Company (RGR)
As the only other pure-play publicly traded firearms manufacturing business, Sturm Ruger & Company’s shares have been on the move since the end of April of this year. However, following the overturning of the AW ban, RGR stock only saw a modest lift before incurring some red ink. Still, I wouldn’t necessarily be discouraged. If you have a long-term view on your stocks to buy, this is one to keep on your radar.
As with Smith & Wesson, Sturm Ruger is in the AR-15 business with its AR-556 series, an entry-level firearm. Previously, the company offered higher-end AR-15 rifles with its SR-556 and SR-762 series, both of which it discontinued in 2016. But should favorable legislation at the national level lead to clarity regarding the much-maligned rifle, Sturm Ruger might decide to reenter the premium AR market.
Without having to implement costly cosmetic changes for California compliance, RGR stock may benefit from a more viable economic proposition. The Golden State is a permanently relevant consumer base for gunmakers, whether they like it or not.
Last year, California sold 1.6 million firearms. To put this into context, this is 70% of ostensibly gun-obsessed Texas’ 2020 tally. Make AR-15s more accessible and fun, and sales should boom, even in blue California.
Firearm Stocks to Buy: Vista Outdoor (VSTO)
In 2019, Vista Outdoor sold its Savage Arms and Stevens firearms brands. At the time, the divesture may have seemed like a good, even necessary idea. In large part, the company struggled to attract investor dollars. When the company announced the deal, VSTO stock traded hands in single-digit territory. At its lowest point, you could have bought shares for less than $5.
Today, it earned its status as one of the top stocks to buy with a price tag north of $40. True, the sale of its firearms brands was in hindsight a terrible decision. Despite the two brands catering exclusively to hunting and sportsman advocates, they would have sold out their products during the gun-buying panic of 2020.
Nevertheless, Vista management had the good sense of keeping its ammunition business. As we all know, firearms aren’t that useful without brass (okay, just a figure of speech — steel and aluminum, actually).
Should the legal environment in California and the rest of the country decisively turn favorably for firearms stocks to buy, then VSTO is one to keep on your short list. AR-15s go through .223 Remington rounds like no one’s business, translating to strong revenue channels.
Big 5 Sporting Goods (BGFV)
Lately, Big 5 Sporting Goods just can’t seem to grab investors’ attention. Sure, the company benefited from the bankruptcy of Sports Authority in a purely cynical sense. But the loss of a major competitor was not enough to spark interest in BGFV stock.
For one thing, the outdoors industry suffered from a relevance problem with millennials. With so many sources of available entertainment — especially digital variants that don’t require you to leave the home — BGFV stock had myriad rivals to contend with. Moreover, people who were interested in sporting goods could just shop online or to other, cleaner retailers.
But then the novel coronavirus pandemic occurred and suddenly, the market gods smiled on Big 5. Though not the most popular source for firearms due to its exclusive inventory of hunting rifles and shotguns, the supply shortage of firearms gave BGFV a new lease on life.
Moving forward, I expect that the AW ruling should bode well for the sporting goods retailer. No, Big 5 doesn’t sell AR-15s. However, gun owners tend to diversify their portfolio, if you know what I mean. With availability of firearms still a problem, I expect BGFV shares to perform positively.
Firearm Stocks to Buy: Ammo Inc (POWW)
When the Covid-19 crisis first became a reality in this country, I had a gut feeling that gun stocks to buy would become a popular investment thesis once we got out of the March doldrums. With so much uncertainty regarding the virus, as well as society on edge, the natural place for people to turn to was the second amendment.
But as I mentioned, guns aren’t all that useful without ammunition. In this context, it’s not hard to see why Ammo Inc became one of the top stocks to buy last year. Following a long bout in single-digit territory, POWW stock closed at just under $10 on Feb. 11 of this year. It has given up much of those gains but since mid-May, sentiment started to improve.
You can blame another supply chain issue for this one. Due to the rush for guns, both firearms newcomers and longtime buyers made sure to secure ammo for their stash. It’s so bad that according to NBCWashington, the ammo shortage raised concerns among police departments in the Washington, D.C. area.
But if California’s overturning of the AW ban sticks, we may see continued demand for ammo, particularly the .223/.556 caliber.
American Outdoor Brands (AOUT)
If American Outdoor Brands has a familiar ring to it, that’s because the iconic (and notorious) Smith & Wesson brand was under the AOUT umbrella. Following SWBI’s spin off, though, American Outdoor focused on its namesake industry. But if you thought the loss of the firearms brand would be detrimental to AOUT stock, you’d stand corrected.
Over the trailing year, shares of American Outdoor more than doubled. As well, on a year-to-date basis, AOUT is up over 92%, easily making it one of the best performing stocks to buy of any category. In part, the enthusiasm can be tied to the shift in vacation habits based on the Covid-19 crisis. Suddenly, people were no longer interested in flying to their destination but buying or renting recreational vehicles.
In the years ahead, should the AW ruling in the Golden State stick, you’d expect more interest in outdoor activities to boost AOUT, considering its association with the shooting sports. Also, under American Outdoor, the company offers firearms-related brands such as Caldwell (safety equipment and other accessories) and Crimson Trace (optics, lasers and weapons lights).
Firearm Stocks to Buy: Walmart (WMT)
Although Walmart built its reputation for its family friendly everyday low pricing, the big-box retailer has a not-so-hidden dark side. Well, I don’t really look at it that way, but certainly, gun control advocates have taken aim at Walmart. According to an October 2020 report from the Washington Post, the retailer “currently sells firearms at about half of its 4,700 U.S. stores.”
Of course, this doesn’t sit well with those on the left, particularly as gun violence has become such a prominent issue. Nevertheless, I don’t expect Walmart to easily give up its place as one of the firearms stocks to buy. No matter how you look at it, firearms represent an incredibly lucrative business.
As the Washington Post reported, in 2015, the U.S. reached a point where the nation had more guns than people. This circumstance has only increased for the worse, depending on how you look at it. Further, the Covid-19 pandemic and subsequent panic pushed gun sales even higher.
And then may come the whammy. If the California AW ruling becomes solidified, it will be that much more difficult for Walmart to turn its back on the shooting sports industry. Heck, it might even reverse some restrictions.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.