The recent proliferation of mass shootings across America has shocked the nation and sparked furious debate among politicians.
But through it all, business has been booming for firearm companies Smith & Wesson Holding Company (NASDAQ: SWHC) and Sturm, Ruger & Company (NYSE: RGR).
Whether it’s warranted or not, as Washington continues its squabble over gun control, firearm makers have been making a mint off of people’s escalating fears.
“The government is coming after our guns…”
The latest Gallup poll indicates that 37% of Americans don’t want the Senate to pass expanded background checks for gun purchases.
In fact, President Obama’s lobbying for stricter gun has led to a major surge in gun sales over the past few years.
According to the FBI, gun sales in the US hit a new all-time record.
The total number of background checks conducted for gun sales last year added up to 21,093,273.
This eclipsed the previous 2012 record of 19,592,303. Not surprisingly, Texas conducted the most background checks with 1,633,278.
The growth occurred in the midst of the White House trying to push through new gun control measures. Meanwhile, the President continues to release various executive actions on gun control.
Unfortunately, the various states that have tightened their gun laws saw spikes in sales rather the other way around.
The FBI reported that gun sales in Maryland doubled from 136,604 to 231,361 in 2013. Colorado rose from 414,838 background checks to 514,658. Connecticut handled 237,496 checks in 2012 and 294,338 went through the system last year.
And not surprisingly, the surge in sales has been absolutely lights out for a 150-year old veteran of the gun business.
Top Gun Stocks To Buy Today:
The gun industry has two primary companies, which occupy the biggest percentage of the market, Smith & Wesson Holding Company (NASDAQ: SWHC) and Sturm, Ruger & Company (NYSE: RGR).
Although both gun makers have seen record growth over the past few years, fundamentals point to SWHC as having a slight edge in long-term growth prospects.
SWHC was founded back in 1852, and in the years since, its various pistols and revolvers have become a staple accessory for police and armed forces throughout the world.
The last six years saw SWHC’s share price appreciate some 80%. It’s currently trading at around 10x forward earnings, which is less pricey than RGR’s 15x.
The Company underwent a stock repurchase last year, which slashed shares outstanding by a whopping 19%.
By tightening the float, SWHC went on to beat analysts’ estimates with an EPS of $0.35 in Q4 2013, which was a 33% increase from Q3. In the process, they saw a 7% sales increase.
The stock buyback may turn out to be a good strategic move over the long term as 2014 rolls on.
See, despite the recent acceleration in gun sales, the total number of background checks for the first five months of 2014 is down over 6% compared to the same period last year.
Though the pace remains quite brisk, we are seeing a slowdown in the number of people rushing to buy guns ahead of any bills that become law.
Euphoria over the right to bear arms appears to have settled down somewhat, which SWHC should be well insulated for…until the next “fear” wave.
And that wave could come soon.
Former New York mayor Michael Bloomberg will reportedly spend $50 million per year to support his latest fight against gun violence by backing a new group called Everytown for Gun Safety (EGS).
Gun control activists believe that this new initiative will have the legs to beef up the background check system.
But if the last couple years of anti-gun lobbying are any indication, we may very well see the next big surge in gun buying should EGS gain traction.
When that happens, SWHC will be locked and loaded.
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