When many people talk about "investing" in guns, it is no surprise the act of buying a new firearm is the first thing that comes to mind. But that is not the only way to invest in guns. As you search for your next box of high-priced ammunition, keep in mind the stock market includes many publicly traded companies with their fates tied to the firearm industry.
These are my three picks for the best stocks in this space.
1.Smith & Wesson Holding CorpFirst up is Smith & Wesson, shares of which have already rallied 38% year-to-date. But that does not mean shares cannot continue their rapid ascent.
After several quarters of elevated inventories as consumer demand fell last year, the latest quarterly results finally saw distributor inventory remain flat. Meanwhile, internal Smith & Wessonfirearm inventory declined by $14 million to $85 million, helped by its ad-hoc approach at manufacturing, which enables it to outsource production of certain key parts to better cope with fluctuations in demand. All told, Smith & Wesson stated that this left the company on track to reach its year-end internal inventory goal of $75 million to $80 million.
The company is also successfully using strategic promotions designed to offset any potential market share loss in the current competitive environment. As a result, though these promotions have negatively affected profits in the near-term, Smith & Wesson continues to be the market share leader for both handguns and modern sporting rifles.
Late last year, Smith & Wesson acquired Battenfeld Technologies, or BTI, a hunting and shooting accessories specialist it predicts will offer double-digit growth over the long-term. Though the purchase did require taking on additional debt, that growth combined with near-term boosts to both revenue and EBITDA should help diversify the Smith & Wesson business over the long haul.
2. Sturm, Ruger & CompanyNext is another promising firearms manufacturer,Sturm, Ruger , shares of which are also up over 40% year-to-date. Like Smith & Wesson, Ruger has benefited from the normalizing inventory situation, but the majority of 2015 gains came on the heels of its quarterly results released in late February.
Specifically, that is when CEO Michael Fifer reversed his assertion three months earlier that Ruger had lost significant market share as a direct result of its decisionnotto match promotions used by both foreign and domestic competitors.
But this time, Fifer cited more recent import data indicating greater-than-expected reductions in import volumes to the U.S. in the second half of 2014. In the end, Fifer says Ruger may have still lost share, but the latest data was encouraging in that it implied demand for Ruger firearms declined more closely in line with the broader market than they initially thought.
To its credit, Ruger is still solidly profitable and financially sound, ending last quarter with no debt and $9 million in cash on its balance sheet. Ruger also generates healthy cash flow from operations, $55.6 million last year. This gives it the flexibility to return cash to shareholders through both stock repurchases and a variable dividend of roughly 40% of quarterly net income. Based on its current earnings, that would mean an annual yield of roughly 1.4%, making it a great option for patient investors who do not mind letting returns compound as the market ebbs and flows.
3. Cabela's Finally, if actual firearms manufacturers are not for you, specialty retailer Cabela's offers a great way to capitalize on the sale of guns, ammunition, and related accessories, no matter who makes them.
Cabela's won't release its latest quarterly results until later this month, but in February, CEO Tommy Millner cited "normalization of firearm and ammunition sales" as one of the key reasons he is optimistic for 2015. Millner elaborated:
For perspective, consumers temporarily shifted away from purchasing ammunition in retail stores given frequent difficulty in finding it. But thanks to long-awaited improvements in retail and stock levels, buyers are finally shifting back to purchasing ammunition in Cabela's stores. As demand for both ammo and guns continues to improve from here, so too should the fortunes of Cabela's shareholders.
The article 3 Best Stocks to Invest in Guns originally appeared on Fool.com.
Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.