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Can Gun Stocks Recover in 2017?

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For leading gun manufacturers, 2016 was far from good. Stock prices tumbled and reports suggested that demand would slow this year after what was an extremely good year for sales. Additionally, with a Republican President in office, gun control would be less of a priority, leading to a slide in demand. Meanwhile, tougher regulations, such as the ones put in place by California’s legislators may also lead to a slowdown in gun sales.

However, the firearms industry is likely to find methods to work their way around these legislations. Additionally, gun manufacturers are venturing into allied areas in order to diversify their revenue streams. More importantly, gun companies still carry a substantial amount of investment, leading to a steady rise in their capitalization. This is because they are viewed as a relatively secure investment option.

Gun Stocks Slide in 2016

Last year, Zacks Rank #3 (Hold) Sturm, Ruger & Company, Inc. lost 14.2%. Meanwhile, Smith & Wesson Holding Corporation   also lost 9.5%. This Zacks Rank #3 stock is slated to be renamed as American Outdoor Brands shortly.

Several analysts expect gun sales to slow this year after a spectacular 2016. Last year, a spate of terrorist incidents led to an unexpected rise in demand for firearms. As a result, gun sales could be relatively lower this year, since some amount of demand may have actually shifted backward into last year. It comes as no surprise therefore that industry major Smith & Wesson’s guidance for its next reporting quarter is weak.

Diversification, Innovation to Gain Ground

Smith & Wesson is one example of how diversification and restructuring is fast becoming the favored option for traditional gun manufacturers. For instance, the likes of Cabela's Incorporated fared much better last year. This specialty retailer and direct marketer of hunting, fishing, camping, and related outdoor merchandise saw its stock gain nearly 25% last year. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In contrast, Vista Outdoor Inc. (VSTO - Free Report) fared poorly last year, losing 18.5%. This Zacks Rank #3 manufacturer of recreation and outdoor sports products is better known among firearm enthusiasts. It is renowned for its ammunition brands, which have helped to maintain its visibility.

Meanwhile, the more conventional gun manufacturers are likely to find ways to circumvent strict regulations such as those being enforced by the state of California. Magazine lock company AR Maglock has introduced a device which allows the state’s AR-15 owners to retain the features of their rifles while managing to avoid getting their rifles re-designated as assault weapons. Clearly, innovation and diversification are the tools that gun manufacturers will use to improve their performance in the year ahead.

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