Your Business: Investing in guns and ammunition - they never go out of style

Be a defensive investor.

December 8, 2014 23:05
3 minute read.
AN EMPLOYEE speaks to a customer about the purchase of a handgun at a store in Bridgeton, Missouri,

AN EMPLOYEE speaks to a customer about the purchase of a handgun at a store in Bridgeton, Missouri, last month.. (photo credit: REUTERS)

This is the last of a four-part series suggesting stable industries for growing your money. They are not glitzy or top of the news. The companies are characterized by stable and steady growth, some with great potential for mergers and acquisitions. They may pay a good dividend, but their most valuable attribute is relative safety from significant downside worries. In these turbulent times with bulls and bears knocking heads, do not just be defense investors.

Be a defensive investor.

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Guns and ammunition never go out of style, are in demand all over the world, are purchased by local police forces and nation states, hunters, survivalists, collectors and moms and pops. The products are consumables, always needing replacing.

This is not a primer on death and the best killing machines.

It is a brief observation on small weapons and ammunition manufacturers. Their products are for personal defense, recreation, hunting and sports shooting, and small-arms sales to the police and military.

I do not refer here at all to “defense contractors.” President Eisenhower sagaciously tagged them “the military-industrial complex” – aerospace and missiles, military vehicles, ships, mercenary companies, biotech and electronic or computer weapons systems.

Smith & Wesson Holding Corp. and Sturm, Ruger attracted at least seven analyses on the premium financial website Seeking Alpha in June and August. The two companies “have consistently held the number 1 and 2 ranks for [the past] 25 years” in selling small arms and light weapons: revolvers and self-loading heavy machine guns, rifles, carbines and pistols (12.7-20 mm.). Grenade launchers, portable antitank and antiaircraft guns and missiles, submachine guns, portable antiaircraft guns and mortars of calibers less than 120 mm. are their stock and trade. Smith & Wesson and Sturm, Ruger shares are near their 52-week lows and are a buy to consider.

Olin Corp. makes ammunition. Until Ferguson, Missouri, there was a temporary blip in demand compounded by fear of new stringent gun-control laws, changing winds on the political scene. Olin sales grew 15 percent in the last 52 weeks and income by nearly 20%. The dividend yield is close to 3%. Its Winchester ammunition brand accounts for a lot of the sales growth. Olin makes other products, so investors must weigh the sum of the parts to the future of the whole.

This year, the Finance Committee approved privatizing Israel Military Industries Ltd. (IMI). Once IMI is sold, the owners will undoubtedly take it public. The company manufactures firearms, ammunition and military technology sold in Israel and worldwide. Its inventory includes brand names such as the Uzi submachine gun, Galil and Tavor assault rifles, the Negev light machine gun and the Jericho pistol. IMI redesigned the Magnum semiautomatic pistol for its American manufacturer. It is one of the most sophisticated research and development companies in small-weapons development.

The company lost NIS 593 million in 2013, double that of 2012. This loss comes despite an operating profit NIS1.4 billion. IMI losses are largely due to excess employees (estimated to be 30%) and out of control pension-fund obligations.

Sounds like the US auto industry pre-2007.

The US military’s exit from two Middle East wars was a sign of its return to a position of military isolationism.

But then ISIS struck, and the US and European nations are shipping weapons and ammunition fast and furious to ISIS enemies. Demand never really goes away.

Mark Twain called his Smith & Wesson’s seven-shooter “grand.” Leave the antiwar philosophy to Dr. Seuss, and read to your kids The Butter Battle Book. But do not miss his message about the escalating arms race. See if you can find a gun company that shoots “powerful Poo-A-Doo powder and ants’ eggs and bees’ legs and dried-fried clam chowder.”

Dr. Harold Goldmeier is the managing partner of Goldmeier Investments LLC and an instructor of business and social policy at the American Jewish University, Aardvark Israel Gap year Program, Tel Aviv.

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