Stocks to Buy: Time to Pull the Trigger on These Three Winners

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U.S. gun sales are at an all-time high. Ammo is flying off store shelves as well.

And that bodes well for companies in the firearms industry, putting the three mentioned below on many investors' "stocks to buy" list.

Fact is, demand for guns and ammo over the past few months is breaking all records. Just take a look at statistics compiled by the FBI's National Instant Criminal Background Check System (NICS).

In February, NCIS recorded 2,309,393 background checks – 32% higher than February 2012. December 2012 saw the most background checks in any month in U.S. history, when nearly 2.8 million background checks were performed.

Altogether, the FBI recorded more than 16.8 million background checks for gun purchases in 2012, the highest number since they began publishing the data in 1998.

What's more, the actual number of weapons sold could be even higher because customers can purchase multiple guns for each check, USA Today reports.

In fact, demand is so high, the companies that make these products are having a hard time keeping up.

Dale Raby, manager at Gus's Guns shops in Green Bay, WI, told The New York Times his inventory of guns and ammunition was almost wiped out, especially AR-15 military assault rifles.

"I almost had fistfights over…that type of gun," Raby said.

"If I had 1,000 AR-15s I could sell them in a week," Jack Smith, an independent gun dealer in Des Moines told the Times.

Around the country, many guns are simply out of stock and prices are skyrocketing.

Changes in Gun Control Laws

The reason guns are flying off the shelves is the recent battle over new gun control regulations stemming from public outcry over the Newtown, CT school shootings.

Before the Newtown tragedy, a low end AR-15 would fetch $700. Now it will cost you $1500. A 30-round rifle magazine was $12, but now commands $60.

In January, New York became the first state to pass a gun control bill since the Newtown shooting.

Lawmakers tightened the state's ban on assault weapons, restricted the number of bullets in magazines to seven, and made it tougher for mentally ill people to acquire guns.
A number of other states are also considering new gun control bills.

But the fight over gun control is fading away as new political crises emerge, including immigration reform and the sequester.

Despite a rash of tragic shootings over the last few years, the National Rifle Association (NRA) has fought off any meaningful gun control efforts. And with a lobbying budget of roughly $2.2 million, the NRA has kept industry sales humming for years.

So while a weak economy has caused many sectors to suffer, the gun industry has racked up a long record of success. In fact, the firearms industry came through the Great Recession largely unscathed compared to many other hard hit U.S. businesses.

Gun industry-related jobs grew by more than 30% between 2008 and 2011, according to National Shooting Sports Foundation.

Overall, the firearms industry had a $31.8 billion impact on the economy last year, up from $27.8 billion in 2009.

Here are three companies set to profit from the trend for a long time.

Three Gun Stocks to Buy Now

There are two great pure play stocks for buying guns — Sturm, Ruger & Co. (NYSE: RGR) and Smith & Wesson Holding Corp. (Nasdaq: SWHC).

The biggest manufacturers in the business have been making shotguns, pistols, revolvers, and semi-automatic weapon guns for decades and they sell thousands of them every day.
RGR has a market cap of $1.1 billion and price/earnings ratio of 15.9. The company also pays a solid dividend of 2.7% on a low 34% payout ratio. The company has an ultra-low price-to-earnings-growth (PEG) ratio of 0.24 and no debt.

Revenue increased by 52% last quarter and earnings jumped by 88%.

The smart money likes what it sees with RGR – over 91% of its stock is owned by institutions, including The Vanguard Group Inc. and Allianz Asset Management AG.

SWHC has a market cap of $661 million and a P/E of 12. Although it pays out no dividend, the stock has more than tripled since November 2011. SWHC also sports a low PEG of 0.27.

Revenue climbed by 39% last quarter and earnings skyrocketed a whopping 225%. The company has more than enough cash to pay off its debt and institutions hold about 60% of the stock.

If ammo is your vice, think Winchester, a brand owned by Olin Corp. (NYSE: OLN).

OLN has a market cap of $1.8 billion and a P/E of 12. The company pays a juicy 3.48% dividend with a reasonable 43% payout. Earnings jumped by 88% on revenue growth of 31% last quarter.

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  1. Carlos nNoriega | March 13, 2013

    While i am all for business speculation, i have a real moral problem aquiring speculative stock of companies who could potentially hurt societies communities and individuals. Stocks in question are guns manufacturing and cigaretts.
    As a foreigner but higly aquainted with the US and also a country I admire, as said have serious moral dilemas with these stocks which might make me richer at potencially the cost of tragic deaths thru murder and illness.

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