Gun Background Checks Hit a Record High In March. The Gun Manufacturer Sector Is Controversial, but Should You Invest?
Guns are arguably one of the most controversial topics in America today. Most Americans have an opinion on them. Regardless, Americans have the right to bear and keep arms under the Second Amendment to the United States Constitution.
With the outbreak of COVID-19 causing many Americans to fear for the future, people are rushing to buy guns at a record pace.
According to the FBI, the number of background checks to purchase a firearm has spiked recently. This March, 3.7 million background checks were conducted — the most in a single month since data began in 1998. Prior to last month’s record-breaking background checks, the single-month record was 3.3 million in December 2015.
“This is overwhelming evidence that Americans value their ability to take responsibility for their own safety in times of uncertainty,” said Mark Oliva, spokesman for the National Shooting Sports Foundation. “The figures are simply eye-popping.”
Investing in gun manufacturers is a heated topic. Some believe public state pension funds and asset management companies should not hold stocks of firearm makers. For example, New Jersey proposed legislation in 2018 to restrict the state’s public pension funds from investing in the stocks of gun manufacturers.
BlackRock, the world’s largest asset manager and provider of the popular iShares exchange-traded funds (ETFs), places the blame on index providers who include gun manufacturers in the indices it is obligated to track.
Not everyone believes personal opinions on guns should prevent investments in gun manufacturers. Warren Buffett said his Berkshire Hathaway wouldn’t boycott gun manufacturers, saying it “would be ridiculous” to not do business with gun owners. Buffett said his political opinions shouldn’t interfere with Berkshire’s investments or business operations.
So, what are some ways to invest in this controversial, but increasingly strong sector?
Despite thousands of U.S.-listed stocks, there are only two publicly traded gun manufacturers — American Outdoor Brands (AOBC) and Sturm, Ruger & Co. (RGR).
American Outdoor Brands, formerly known as Smith & Wesson Holding Corporation, produces firearms as well as other gun-related accessories under 18 different brands. The company’s market capitalization is just over $400 million, with sales of more than $600 million in its most recent full year.
Sturm, Ruger & Co. is America’s largest firearms manufacturer, and second-largest pistol and revolver manufacturer after American Outdoor Brands’ Smith & Wesson brand. The company’s market capitalization is just under $900 million, with sales of nearly $650 million in its most recent full year.
Another company, Vista Outdoor Inc. (VSTO), offers a wide array of products relating to shooting and hunting. The company, which owns optics manufacturer Bushnell and ammunition manufacturer CCI, gets more than 50% of its revenue from its business units relating to shooting sports. The company’s market capitalization is nearly $550 million, with sales of more than $1.8 billion in its most recent full year.
Despite significantly scaling back their firearms business in recent years, retailers such as Dick’s Sporting Goods (DKS) and Walmart (WMT) can still give you exposure to the sector. Dick’s sells firearms for hunting and ammunition, while both still sell a wide variety of gun accessories such as gun storage, scopes and hunting-related accessories.
With the topic of guns likely to remain controversial, investing in guns may not be for everyone. If, however, you want to have exposure to them in your portfolio, these companies may provide you a good opportunity to capitalize on Americans’ interest in them.