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How to Invest in Gun Stocks

By Dan Caplinger - Jan 3, 2018 at 7:30PM

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The firearms industry can be a complicated sector for investors, and not just because the catalysts that move gun sales can seem counter-intuitive.

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:

  • Do you want a pure play on firearms or more diversified business exposure?
  • Are you more interested in personal firearms or military weaponry?
  • 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 (SWBI 3.89%)

$716 million

(37%)

Sturm, Ruger (RGR 3.63%)

$988 million

7%

Vista Outdoor (VSTO 3.25%)

$863 million

(59%)

Olin (OLN 2.12%)

$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.

Silver gun with black handle resting on a white counter, with a target in the background.

Image source: American Outdoor Brands.

Things that go boom

Another thing to consider as an investor is which parts of the weapon industry you think is likely to thrive. Military weaponry goes well beyond guns, and the companies that produce sophisticated equipment like tactical missile systems, tanks, and attack aircraft are typically defense contractors with huge operations.

By contrast, gun manufacturers that serve the consumer market tend to be much smaller. Those more modest roots give them greater opportunities to grow, but the risks involved are consequently higher.

ETFs for gun investors?

Investors who favor exchange-traded funds will be disappointed to learn that there are no gun-specific ETFs, and even some of the funds that focus on so-called "sin stocks" tend to shy away from gun manufacturers.

You can find plenty of ETFs that concentrate on defense stocks, so if military weaponry is your primary interest, then that's an option. To get exposure to companies like Sturm, Ruger and American Outdoor Brands, however, you'll have to buy individual company shares.

What's next for gun stocks?

Gun manufacturers generally had a tough 2017, with a friendly political environment removing any sense of urgency among buyers. As companies adapt to changing conditions, however, many bulls are hopeful that gun stocks can recover and rise in 2018 and beyond.

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Stocks Mentioned

Sturm, Ruger & Company, Inc. Stock Quote
Sturm, Ruger & Company, Inc.
RGR
$68.66 (3.63%) $2.40
Smith & Wesson Brands, Inc. Stock Quote
Smith & Wesson Brands, Inc.
SWBI
$15.48 (3.89%) $0.58
Olin Corporation Stock Quote
Olin Corporation
OLN
$64.06 (2.12%) $1.33
Vista Outdoor Inc. Stock Quote
Vista Outdoor Inc.
VSTO
$38.78 (3.25%) $1.22

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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