Worried about electoral chaos? Buy these 3 actions
If you are feeling anxious about the US election, you are not alone.
The only thing both sides of the political aisle seem to agree on is that it looks like the most consequential election in modern American history. According to a survey conducted by the Braver Angels association, 70% of Americans believe that “if the wrong candidate wins, America will not recover.”
For investors, strategizing around such a pivotal moment is a challenge. Some stocks appear to be on the verge of rising if the president Donald Trump wins and another group likely to benefit if the Democratic candidate Joe Biden wins. But one potential outcome is that no clear winner is known for several days, as the number of mail-in ballots has skyrocketed due to the constraints of the pandemic and the count could take a long time. This could lead to a number of unprecedented situations.
In fact, betting on post-election chaos might be a better bet than assuming tensions will ease. A recent YouGov poll found that 56% of voters believe there will be “an increase in violence as a result of the elections”.
In these uncertain times, one industry thrives unlike almost any other. Investors fearing the chaos and violence resulting from the election should take a look at gun stocks like Sturm, Ruger (NYSE: RGR) and Smith & Wesson brands (NASDAQ: SWBI), two publicly traded handgun manufacturers, and Vista Exterior (NYSE: VSTO), a manufacturer of firearms ammunition and accessories.
A hedge against political tensions
Sales of firearms have already started to increase in anticipation of civil unrest. FBI background checks have been high for much of the year as tensions around, first, the pandemic and then protests after George Floyd’s murder sparked a gun scramble. . More recently, the upcoming election appears to be the primary motivator for buying guns, as background checks, often seen as an indicator of gun sales, have skyrocketed. In October, FBI background checks rose 38% to 3.3 million, following a 31% increase in September to 2.9 million.
Unsurprisingly, these three gun stocks have already been big winners this year, particularly Smith & Wesson and Vista Outdoor, as you can see in the graph below.
Chez Ruger, who just reported third quarter results, sales jumped 53% to $ 145.7 million, easily beating estimates to $ 132 million, while earnings per share rose from $ 0.27 to $ 1.39, well ahead of estimates. at $ 0.97.
“Consumer demand showed no signs of easing in the quarter as concerns over personal protection and home defense were fueled by civil unrest in some cities across the United States, the call, per some, to reduced funding and authority for law enforcement agencies, and the continuation of the COVID-19 pandemic, “CEO Chris Kiloy said in a statement. “Due to this unprecedented demand, inventories remained significantly reduced at all levels of the channel during the third quarter. “
Killoy has not commented on the election, but political tensions, especially around issues such as police funding and protests against police violence, seem likely to be a tailwind no matter what happens with it. the elections. The biggest challenge for gun companies like Ruger may be production constraints at this point, as demand has been very robust.
Smith & Wesson has not reported any earnings since early September, but in this quarter, which ended July 31, revenue more than doubled and firearms sales, which made up the bulk. of its activity, increased by 141% to reach 230 million dollars. Its bottom line went from a loss of $ 2.1 million in the quarter a year ago to a profit of $ 48.4 million.
At Vista Outdoor, which is less sensitive to gun sales, revenues (adjusted for the sale of its Savage brand of guns in 2019) jumped 17% to $ 334 million, and gross profit adjusted climbed 71% to $ 85 million.
A victory for Biden would also be a boon
While tensions around the pandemic, racial injustice, law enforcement and politics have all resulted in increased arms sales this year, the prospect of a Democrat in the White House leads often to an increase in arms purchases by itself, and if Biden wins, arms sales are expected to explode. Democrats tend to favor gun control policies, and Biden has a few proposals, including a ban on assault weapons and a universal background check policy, which could spur a race against those guns, because buyers fear the ban. Biden also plans to hold gunmakers accountable and civilly accountable, like mass shootings, which could have long-term consequences for gunmakers. Yet this law has already been defeated and the gun industry enjoys unique protections thanks to the Second Amendment.
Gun sales soared after Barack Obama was elected president in 2008, FBI background checks increased 42% to 1.5 million, and gun sales rose saw a steady rise throughout Obama’s eight-year tenure, jumping again upon re-election and after mass shootings like Sandy Hook Elementary School. Shooting in schools for fear that gun control legislation will follow. Conversely, gun sales plummeted after Trump’s victory in the 2016 election.
A Biden victory would likely elicit a similar response from gun buyers to Obama’s election, especially given the already ripe polarization and tensions in the country.
What about the long term?
Performance among firearm manufacturers tends to be very cyclical and reflects broader concerns about politics, personal safety, and gun laws rather than gun cycles, but these businesses could experience sustained growth, unless a strict crackdown on the industry or costly lawsuits because the other issues that have resulted in increased sales are unlikely to go away.
Based on their forecast for the current year, these stocks look cheap. Analysts expect Smith & Wesson to earn $ 2.42 this fiscal year, giving it a price-to-earnings ratio of just seven. Even if earnings decline after that, the gunmaker can use those earnings to buy back shares or reinvest in the company, which would help increase the shares in the long run. Ruger and Vista Outdoor are both trading for higher valuations than Smith & Wesson, but are also expected to enjoy a post-election windfall, if not sustained growth, over the next few years, which would likely be under administration. Biden.
In major cities, buildings are barricaded in anticipation of possible election violence, yet another reminder that this is an unprecedented time. The stock market would almost certainly fall into prolonged uncertainty over who will win the election or the violence and chaos in the streets, but Smith & Wesson, Vista Outdoor and Sturm, Ruger will win on these tensions and are poised for long term gains on a victory for Biden.
With the volatility lurking around every corner, these stocks are ready to deliver.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.