Gun sales have been quite strong in 2020 which fits considering fears of political and economic unrest. Additionally, Democrats could control Congress and the executive branch depending on the outcomes of the runoffs in Georgia.

Another reason to believe that gun sales could be strong in the early parts of 2021 is the heightened unemployment rate which leads to higher crime rates. Crime rates were higher in many parts of the country due to the lockdowns and downturn in fortunes for many people.
 
Stocks like Smith & Wesson (SWBI) and Sturm Ruger (RGR) could see more gains especially if Democrats take the Senate. Let’s take a closer look at each to determine which is deserving of a place in your portfolio.
 
The Case for SWBI

SWBI is the firearms division of Smith & Wesson. This stock was once joined with the company’s outdoor goods provider, American Outdoor Brands, yet the company decided it would make more sense to provide investors with the option of investing in either its firearms business or its outdoor products business. SWBI has fared well since news of the split broke, immediately jumping and hovering between $15 and $20 in the months that followed.

Though SWBI is trading about $5 below its 52-week high of $22.79, it is significantly higher than its 52-week low of $4.53. Furthermore, SWBI has an astonishingly low forward P/E ratio of 5.50. It is rare to find a forward P/E ratio at this low of a level, meaning SWBI is underpriced at its current trading price of $17.

If the economy improves, SWBI will likely flatten out simply because of fear of civil unrest and widespread theft/burglary were the main drivers of gun and ammunition sales in 2020. Furthermore, there is always a chance the Biden administration will push to implement new hurdles for the purchase of firearms. However, it is going to take at least a year to return the economy to normal, meaning high unemployment and resulting violence and theft are sure to linger long beyond the start of the new year. Though the economic slowdown is bad news for most businesses, it is good news for SWBI as the company is likely to sell that many more guns in the months ahead.

Check out the analysts’ take on SWBI and you will find there is an average price target of $23.67, indicating there is nearly 40% upside remaining. Of the three analysts who have studied the stock, each of them recommends buying SWBI.

The Case for RGR

RGR makes and sells firearms as well as precision investment castings. RGR operations are located across the country, producing top-notch, reliable, and sturdy firearms for members of the commercial sporting market. However, plenty of people rely on RGR firearms for self-protection. From pistols to rifles and beyond, RGR sells a litany of guns.

RGR is currently trading at $64.60. The stock’s 52-week high is $90.74. RGR’s 52-week low is $38.44. The stock has a forward P/E ratio of 15.03, meaning it is likely slightly undervalued at its current trading price. Check out RGR’s one-year chart and you will find it climbed up until the pandemic, dipped down near $40, and shot up all the way to $90 before falling back down to the $60s. It appears as though there is considerable buyer support around $60, meaning it would be somewhat surprising if the stock slid down to the $50s shortly.

RGR recently completed its acquisition of Marlin. This is a step in the right direction as Marlin’s uber-popular rifles have sold quite briskly. According to the National Shooting Sports Foundation, nearly eight million individuals purchased their first firearm in ’20. Nearly 20 million background checks were conducted on prospective gun buyers, indicating the market is robust and will continue to prove strong at least until the economy significantly improves.

If you still aren’t convinced RGR is a good investment, consider the fact that its third-quarter earnings were up 500% from the prior year. Furthermore, the average selling price of RGR guns shipped this past quarter has increased by 18%. Add in the fact that RGR provides a dividend of 3.37% and you have even more reason to buy the stock.

Which is the Better Buy?

If you have enough dry powder to invest in both SWBI and RGR, you should do so without hesitation. Those tasked with choosing one or the other should consult the POWR Ratings. The POWR Ratings reveal SWBI has “A” grades in the Industry Rank and Trade Grade components. SWBI is ranked 20th of 34 stocks in the Athletics & Recreation category. RGR has a “B” Trade Grade component along with a “C” Buy & Hold Grade component. However, the stock is ranked 45th of 65 stocks in the Air/Defense Services space.

SWBI is a slightly better play, largely because its name is revered for high-quality firearms. When customers are faced with the decision between a firearm made by SWBI and one made by RGR, the in-the-know are likely to favor the SWBI piece. Look for SWBI to move toward $25 before the end of 2021.

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