Guns are a controversial topic in U.S. politics, with arguments pitting gun-control advocates against defenders of Second Amendment rights. Companies that sell weapons often come under attack after mass shootings, and some investors get nervous about the business's long-term prospects. Yet gun stocks don't always react to changing sentiment in the way you would expect. For example, share prices often go up when the news puts more urgency on the issue of gun control; sales rise when the fear of tighter regulation spurs gun fans to stock up. By contrast, periods when there is no prospect that Washington will implement new gun regulations can be poor ones for weapons manufacturers, because that fear-based demand dries up. Such nuances make it crucial to understand the weapons industry before buying stock in a manufacturer.
If you want to invest in gun stocks, you should answer these key questions first:
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Do you want a pure play on firearms or more diversified business exposure?
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Are you more interested in personal firearms or military weaponry?
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Are you looking for an exchange traded fund, or would you prefer owning individual stocks?
We'll look at each of these factors below.
Major gun stocks
| Stock | Market Capitalization | 1-Year Return |
|---|---|---|
| American Outdoor Brands (NASDAQ: AOBC) | $716 million | (37%) |
| Sturm, Ruger (NYSE: RGR) | $988 million | 7% |
| Vista Outdoor (NYSE: VSTO) | $863 million | (59%) |
| Olin (NYSE: OLN) | $6.16 billion | 45% |
Source: Yahoo! Finance.
Going beyond guns
The first question investors need to ask is whether they want a pure play on guns or broader exposure. Some gunmakers have embraced related products in order to diversify their businesses. For instance, Smith & Wesson switched its name to American Outdoor Brands a year ago in order to emphasize the non-gun products in its lineup, which include electronic optics, tree saws, flashlights, knives, and other accessories. Vista Outdoor goes even further, with offerings like Bushnell golf products, Bell and Giro cycling accessories, and Camelbak hydration systems to go with its Savage Arms gun and Federal Premium ammunition brands. Olin is a diversified conglomerate, making chemicals in addition to maintaining its Winchester brand.
Other companies maintain a tighter focus. Sturm, Ruger is well-known for its Ruger gun line, and it markets pistols, revolvers, and rifles along with an assortment of gun-related accessories. You'll find knives and pepper spray at the Ruger website, but it's clearly a weapons-centric business.
Image source: American Outdoor Brands.