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I cringe when I see the destructive riots happening all across the country. I don’t know when the violence will end, but when combined with the “defund the police” movement, many Americans are realizing that they need to take responsibility for their own protection.
For millions of Americans, the solution is gun ownership — a highly controversial and polarizing subject. I’m not here to argue either side, but the investment opportunity of the firearm business simply can’t be ignored.
The process of buying a firearm, however, isn’t simple. Before you can purchase a firearm, you have to go through an FBI background check.
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In the first six months of 2020, there have been 19 million applications for background checks. That’s more than all of 2012, the year of the Sandy Hook tragedy.
Moreover, firearms and ammunition are flying off the shelves at many gun stores. Mark Oliva of the National Shooting Sports Foundation (NSSF), which represents gunmakers, said: “Civil unrest, rioting, looting and calls to defund police are unquestionably motivating factors of why this trend is increasing. Americans are right to be concerned for their personal safety.”
One important development, according to the NSSF, is that 40% of those buying firearms this year are first-time buyers.
The reason is simple: Americans are worried that the police won’t be able to protect them.
According to the National Rifle Association, “People are worried with law enforcement stretched to the maximum, now responding to only selected calls. They realize that when bad things happen, it's going to be up to them to be able to defend themselves and their families.”
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In the month of June, a record 3.9 million firearms were sold, which represents a year-over-year increase of 136% and 1.4 million more sales than the historical average for June going back to 1998.
According to Jurgen Brauer of the Small Arms Analytics and Forecasting, estimates suggest that the market for the first seven months of 2020 has nearly matched that of the entire year of 2019.
June wasn’t a one-month aberration, either. Firearms sales have been strong ever since coronavirus hit our shores:
- March: 85.3% increase, 2.58 million guns sold
- April: 71.4% increase, 1.79 million guns sold
- May: 80.2% increase, 1.72 million guns sold
- June: 145% increase, 2.38 million guns sold
And given President Trump’s trailing poll numbers and very possible Vice President Biden victory that could bring new 2nd Amendment restrictions, sales are going to remain strong for the rest of this year.
There are seven publicly traded stocks that are connected to the firearm industry:
- Smith & Wesson Brands Inc. (Nasdaq: SWBI, Rated “D+")
- Sturm, Ruger & Co. (NYSE: RGR, Rated “C+")
- Big 5 Sporting Goods Corp. (Nasdaq: BGFV, Rated "C")
- Sportsman’s Warehouse Holdings Inc. (Nasdaq: SPWH, Rated "C")
- Vista Outdoor Inc. (NYSE: VSTO, Rated "D")
- Olin Corp. (NYSE: OLN, Rated "D+")
- Axon Enterprise Inc. (Nasdaq: AAXN, Rated “D+")
To be fair, I need to disclose that my Stock Option Hotline subscribers own call options on Smith & Wesson Brands with a current open gain of 34%. And I’m holding out for even more.
Best wishes,
Tony Sagami
