Canadians and members of other nationalities may openly wonder about America’s obsession with firearms. In fairness, it’s not that we are obsessed. Rather, gun owners are among the nicest and most reasonable Americans you can find. It’s just that they’re scared of the insanity of the masses. And even if you don’t want to arm yourself, you should at least consider buying gun stocks.
As I’ve explained in prior InvestorPlace articles, Asian Americans have disproportionately bought firearms in droves following the coronavirus pandemic. Rightfully, they have done so because they fear racially motivated retaliation. If you remember Executive Order 9066, the U.S. historically has had a troubling relationship with American citizens of Asian descent.
Plus, when you consider the scapegoating and animosity at the top, Asian Americans simply do not trust the government to protect them. Honestly, can you blame them? Crucially, this is one catalyst for gun stocks.
The other is that Americans of all persuasions are stocking up for fear of the unknown. According to FBI statistics on firearm background checks, sales have skyrocketed to unbelievable heights. In March, over 3.7 million background checks were conducted, up a whopping 41.4% year-over-year. And in January and February, sales were up 24.8% and 36.4%, respectively. Are you interested in gun stocks now?
And don’t assume that Americans are buying firearms exclusively due to Covid-19 panic. Instead, the FBI’s stats demonstrate a sales spike beginning in April of 2019. To best profit from this outpouring of demand, I suggest considering these gun stocks:
- American Outdoor Brands (NASDAQ:AOBC)
- Sturm Ruger (NYSE:RGR)
- Vista Outdoor (NYSE:VSTO)
- Olin Corporation (NYSE:OLN)
- Sportsman’s Warehouse (NASDAQ:SPWH)
- Axon Enterprise (NASDAQ:AAXN)
- Big 5 Sporting Goods (NASDAQ:BGFV)
Now is not the time to get politically squeamish about gun stocks: we’re Americans and we are violent. The sooner you can accept that, the better. Without further ado, let’s dive into our list.
American Outdoor Brands (AOBC)
Before they were known as American Outdoor Brands, the firearms manufacturer went with a far more iconic identity: Smith & Wesson. However, various firearms-related controversies made that brand name untenable. Even now, it’s not uncommon for mainstream sources to warn investors about undesired exposure to gun stocks. However, the tide may be shifting for AOBC stock.
One of the peculiar details about the firearms industry is that for every year of the Trump administration, sales have moved higher. And we’re not talking about insignificant increases either. In 2019, the FBI recorded nearly 28.4 million background checks. That represents an 8.3% increase over 2018’s tally. Keep in mind that in 2009, background checks increased to the tune of 10.4%. Therefore, the sentiment shift toward firearms is a huge boon for gun stocks.
Additionally, Smith & Wesson is arguably the leader in American firearms. With a wide range of handguns and rifles, they offer everything you need to protect yourself. Therefore, I believe AOBC stock has substantial upside, even if for cynical reasons.
Sturm Ruger (RGR)
The other pure firearms play among American gun stocks, Sturm Ruger, has a storied history. Known for their quality craftsmanship and reliability under inclement conditions, Ruger is revered among firearms experts and aficionados. And these qualities should make them attractive to customers looking for a dependable home defense solution. Of course, investors should also anticipate a ramp up in demand for RGR stock.
However, there’s one factor that has impeded Ruger sales in the past and that’s their products’ price point. Although you get what you pay for, Ruger’s guns – especially their high-quality revolvers and hunting rifles – aren’t exactly cheap. As such, consumers on a budget often resort to “fighter brands” like Taurus.
Fortunately for RGR stock, though, Covid-19 has completely changed the paradigm. With firearms sales blowing through the roof, beggars can’t be choosers. If you’re not willing to pony up for a premium firearm, someone else definitely will.
Vista Outdoor (VSTO)
Pure-play gun stocks have always been a rare breed. With Vista Outdoor selling its Savage Arms and Stevens firearms brand in the summer of 2019, this distinction became rarer. Unfortunately, the timing was terrible. Again, with desperate customers – many of them first-time buyers who don’t know any better – any firearm is a good firearm.
Still, I wouldn’t dismiss VSTO stock outright. Despite the poor timing – and really, who could have guessed that we would be suffering a pandemic now? – Vista Outdoor still owns its ammunition brands. If you think about it, this business is equally as important. After all, if intimidation fails to stop an intruder, you want something to back up your warnings.
Moreover, Vista owns brands that are vital to proper maintenance, such as Hoppe’s 9. With the sudden interest in this sector, you’ll want to keep close tabs on VSTO stock.
Olin Corporation (OLN)
As a global manufacturer and distributor of chemical products, let’s just say that Olin Corporation doesn’t exactly rank highly on the sexiness chart. However, an unparalleled explosion in firearms sales may change this narrative. In addition to chlor alkali products and epoxy technology, OLN stock is levered to the ammunition industry, thanks to Olin’s Winchester brand.
Typically, if you visit your local gun range, you’ll more than likely end up shooting “practice” rounds. Comparatively, these are rounds that are designed for high-volume usage, what shooters call “plinking.” While Winchester offers products for such purposes, the company specializes in purpose-built ammo. As you might guess, these are much more expensive than your plinking ammo.
But as I mentioned above, the demand for firearms and ammo is almost outrageous. Across the U.S., gun stores have reported blistering revenues. Logically, this outsized demand is causing shortages, which forces consumers to grab whatever they can get. That should benefit OLN stock, especially in terms of ammo-related profitability metrics.
Sportsman’s Warehouse (SPWH)
For newcomers to the firearms industry, I imagine that visiting a gun store for the first time is much like visiting a gentlemen’s club – not that I would know or anything. On one hand, you’re fascinated with this industry, if only for its “bad boy” image. On the other hand, you can’t help but feel a little icky.
Fortunately, we have retailers like Sportsman’s Warehouse. To me, I find that it’s just like shopping at any big-box retailer. The exception, of course, is that you’re shopping for AR15s and not, say, 10 gallons of mayonnaise. Personally, I find this familiarity will help ease uncomfortable first timers, which bolsters the case for SPWH stock.
Beyond that, Sportsman’s Warehouse stores typically have a very large footprint. With lines out the door at firearms retailers across the nation, a notable headwind against gun stocks is potential supply chain inefficiencies. Some smaller stores may be forced to operate by appointment only to keep in line with social distancing guidance.
Such circumstances will impact Sportsman’s Warehouse. However, their larger accommodations help mitigate these pressures. Thus, picking up SPWH stock on discount may turn out to be a wise decision.
Axon Enterprise (AAXN)
No matter the circumstance, buying a firearm is a big deal. For some people, their personal conviction may prevent them from making the leap. I totally understand. While the Second Amendment protects Americans’ rights to keep and bear arms, no one is obligated to exercise that right. But for those who still seek personal protection, Axon Enterprise represents a viable solution.
True, AAXN stock is not what you would consider a pure-play example among gun stocks. Heck, it’s not even a firearms manufacturer. Instead, Axon develops Tasers, which fire non-lethal projectiles at assailants, temporarily debilitating them via electric shocks. Once on the floor incapacitated, the user can call law enforcement. It’s a cleaner process, both figuratively and literally.
Another factor that may support the bull case for AAXN stock is the reality of home defense. In these circumstances, an assailant is physically near you, which means long-range rifles are overkill and likely less effective. But with a Taser, you just point and shoot. Plus, you have the confidence that you’re not going to accidentally kill your neighbor.
Big 5 Sporting Goods (BGFV)
Not all gun stocks are recognizably viable and Big 5 Sporting Goods is a great example of this conundrum. I like the sporting goods retailer for providing another avenue for concerned Americans to acquire firearms. But because it’s not a pure-play firearms retailer, BGFV stock has not experienced a lift from the pronounced demand.
Is it possible that BGFV stock can swing higher in the future? One of the contrarian arguments is that Big 5 isn’t the first name that comes to mind for firearm purchases. Indeed, it’s not even the second or third name for most gun owners. However, because it’s so unfancied, customers that are having trouble with their primary retailers may swing around to Big 5.
Even then, I must admit this is a tough call. While Big 5 does sell firearms, they almost exclusively sell guns geared for hunting. This translates to rows and rows shotguns and bolt-action rifles. Shotguns are amazing for home defense, but bolt-action rifles? Unless you target practice from a grassy knoll, the latter is of questionable value for such circumstances.
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. As of this writing, he did not hold a position in any of the aforementioned securities.