Switching gears, we turn to the world of guns. Why? Because gun stocks are strong. You probably haven't read about it in the news, and Lord knows it's not a topic that gets much ink or airtime in our urban East Coast media. But I was looking at the list of stocks hitting new highs one day and there they were, like a shotgun blazing away with both barrels.
So why are gun stocks strong? The first reason, apparently, is that many Americans fear President Barack Obama and his associates will soon make guns more difficult to buy ... so they're buying them now. The second reason is fear of burglary and robbery, and the other crimes that tend to increase during recessionary times.
Now, you can argue with one or both of these statements, but what you think doesn't really matter. And what I think doesn't really matter. What matters is that the stocks are strong, reflecting real buying power from investors backing up their thoughts and fears with real money.
Exhibit one is Sturm Ruger (RGR). Two weeks ago the company reported excellent fourth quarter results, blowing away analysts' estimates. Revenues grew 72% to $58.5 million, while earnings per share jumped from a loss of a dime to a profit of 30 cents. In response, the stock zoomed from 6 to 11 over two weeks, and now it's consolidating that gain. But I don't think it's gone too far, and apparently, neither does management. Last year, the company bought back 7.5% of its outstanding shares on the open market at an average price of $6.57 per share.
Exhibit two is Smith & Wesson (SWHC). The company reported fourth quarter earnings just last night. Revenues grew 25.9% to $83.2 million, while earnings grew 25% to 5 cents per share. The stock has climbed from below 2 to above 4 in the past five months. But the earnings report sparked fresh buying today, sending the stock up to 5.
Exhibit three is Cabela's (CAB), the retailer of many of those two companies' firearms as well as a wide variety of hunting and camping equipment and apparel. The company's fourth quarter results, which came out on February 19, saw revenues shrink 1%, but that was better than analysts' estimates and the biggest reason was firearms. CAB has climbed from 5 to nearly 9 in the past four months.
Now, none of these three stocks has been recommended in any of Cabot's paid investment advisories yet. Sturm Ruger is rather lightly traded and the other two are somewhat low-priced. All three are sort of on the edge of "respectable" territory. You're welcome to investigate further, and if you do decide to buy, I caution you to employ technical analysis in addition to fundamental analysis, remembering to buy on dips, never average down, let winners run and cut losses short.