Without knowing it, Obama is making Sturm Ruger & Co and Smith & Wesson too big to fail!
President Obama’s nomination of federal appeals court Judge Sonia Sotomayor to replace retiring Supreme Court Justice David Souter heralds yet another victory for gun-makers. Yes, you read that right.
Let me explain.
While most investors have been rightly focused on the crisis in the markets and economy lately, some Americans have been focusing on other political issues, namely the Second Amendment.
They wonder, will the Obama Administration and new Supreme Court nominee Sonia Sotomayor put the right to bear arms in jeopardy? Clearly, many think so, as evidenced by an increase in gun sales and an associated rally in gun stocks.
Indeed, two of my favorite gun stocks, Sturm Ruger & Co. (RGR) and Smith & Wesson (SWHC), rallied Thursday on the news of Sotomayor’s nomination. But it’s not just Sotomayor’s nomination that has been lifting the gun-makers. The recession has helped, too.
Buying protection
You wouldn’t think a recession as deep as the one we’ve been experiencing would be a boon to gun sales, but many citizens are arming themselves expressly because of the recession. You see, the recession has brought massive budget cuts to many municipalities. That means less fire and police protection. In response, gun sales are on the rise.
My response to this undercurrent is to recommend stocks that take advantage of the increase in gun sales.
Two of my favorite stocks to buy now make guns.
Sturm Ruger & Co. (RGR) is one of the leaders in the space, producing products across the firearm spectrum. The company is enjoying growing sales at a time of recession due to the political undercurrent. I rate the stock an A or Strong Buy.
Smith & Wesson (SWHC) was made famous by Clint Eastwood’s, “Dirty Harry” character. Some poor management decisions helped push SWHC to under $2 per share prior to the election last November.
But post-election, the stock has doubled in value. I expect more of the same until the administration can definitively ease concern regarding the Second Amendment.
I rate SWHC a B or Buy.
Another benefactor of the boom in gun sales is the sporting goods retail space. I have a good friend that owns a very small independent sporting goods shop. He can’t keep enough gun products on the shelves.
That bodes well for sporting goods superstore, Cabela’s (CAB). Retail sales have struggled during this recession, but gun sales are easing the pain for CAB. That, combined with expectations of economic recovery, have pushed CAB to pre-financial crisis levels.
I rate CAB a B or Buy.
The market is treading water due to the tug and pull of the inflation and deflation camps. The gun story though seems to be on a straight shot higher. Investors can benefit by following that trend.
