Shares of gun- and firearm-related companies are poised to surge yet again amid a politically charged atmosphere as Democratic presidential hopeful Hillary Clinton has pushed the gun-violence issue to the center of her campaign by attacking the National Rifle Association (NRA).
A seemingly endless string of political and social factors have enabled investors in America's gunmakers to cash in from a surging demand for weapons, Seeking Alpha
Smith & Wesson Holding Corp. (NASDAQ:SWHC)
reported better-than-expected quarterly results, with sales rising 61% to year-over-year to $210.8 million and profit jumping to $31.4 million from $8.1 million a year ago.1
The company's CEO, James Debney, told analysts on a conference call that the demand for firearms is a result of short-term influences of "potential impact of news events and the current political environment," the Wall Street Journal
Smith & Wesson said firearm net sales jumped 56.4% to $194.7 million in its latest quarter, up from a year earlier, the Journal reported.
Meanwhile, rival Sturm Ruger & Co. (NYSE:RGR)
stock rose following its quarterly results that handily beat Wall Street expectations, according to a Reuters report.
Gun stocks have climbed steadily in recent years in part due to massacres like December's shooting in San Bernardino, California, that have increased calls for gun control, Reuters has reported.
During the past five years, for example, Sturm Ruger's stock has more than tripled, dwarfing the S&P 500's 45% increase.
The Wall Street Journal
reports Clinton has teamed up with Mothers of the Movement — whose members have been affected by shootings, police overreach and racism — to hold town hall meetings to discuss the nation's gun laws.
She's confronting the NRA and promoting the need for tougher background checks and increased regulation of firearms sales at gun shows.
Gun advocates are fighting back.
The NRA has slammed Clinton on gun control in an ad mocking her understanding of the Second Amendment and gun owners.
Fears of stricter regulation has led Americans to buy more firearms.
Sturm Ruger expects increased demand if a Democrat wins thes presidential election and becomes positioned to appoint future Supreme Court justices, the company's CEO Michael Fifer said on its conference call, Reuters reported.
"I think we'll see a step up in demand if a Democrat wins the election, particularly so if they win the Senate," Fifer said.
After conservative Supreme Court Justice Antonin Scalia died, replacing him has become a major flashpoint between President Barack Obama and Republican lawmakers, the outcome of which could tilt the balance of the nation's highest court on numerous decisions, including gun control, Reuters
But Fifer also looked beyond the current vacancy to future potential openings should any of the remaining eight justices leave the court.
"Despite whether President Obama is successful in appointing a Supreme Court justice, it's more than likely, based on age and health, that the next president will get several opportunities, and that could drive concerns about gun rights," Fifer said.
The sector's longer-term returns lave led portfolio managers to make gun-related stocks major holdings in mutual funds, Reuters noted.
"The firearms industry enjoys a sweet spot with the American consumer, and we believe shares of (Sturm Ruger) should be bought," Dougherty & Company analyst Andrea James wrote in a research note following Sturm Ruger's report.
In the short term at least, the bullish sentiment was echoed by Cowen analysts, who noted in a recent report that adjusted numbers tracking FBI background checks, a rough indicator of sales, rose 16% last month.
"The overall gun-market vigor reflects another month of 'surge' demand driven by fears of regulatory initiatives and potential terrorist attacks," the analysts wrote.
The average number of monthly gun applications in 2015 was 1.9 million. So far in 2016, monthly firearm applications are averaging 2.5 million, according to the FBI.
With average gun applications per month rising by 600,000 so far this year, Money Morning
predicts that Smith & Wesson stock that will benefit most from the surge.
“Smith & Wesson is one of the best gun stocks to buy this year,” Money Morning explained. “Unlike its competitors Vista Outdoor and Sturm, Ruger, & Co., Smith & Wesson sells its products both domestically and internationally. Because of this, SWHC offers stockholders a broader sales base than most other U.S. gun makers, even if the majority of its sales are in the United States.”
"SWHC stock is perennially underestimated," Money Morning Chief Investment Strategist Keith Fitz-Gerald
"Socially it's the financial equivalent of a stray dog that you begrudgingly welcome to the family picnic. That sets up a contrarian opportunity based on nothing more than sentiment."
(Newsmax wire services contributed to this report).
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