Manufacturers are apparently operating at capacity and still can’t keep up with demand. Gun stores and big retail suppliers such as Wal-Mart Stores, Inc. (NYSE:WMT) are even beginning to ration ammo — if they can get any in the first place. According to Forbes, the national shortage of bullets, like the increasing demand for guns, is also correlated to the fear of stricter gun laws. Fear causes greed and hording. Bullets are being horded, even with production picking up.
One ammunition manufacturer that is publicly traded and reaping in the benefits of this trend is Olin Corporation (NYSE:OLN). Olin is the manufacturer of the Winchester brand, which is one of its three operating segments — along with Chlor Alkali Products and its Chemical Distribution segment. Strong ammo sales gave the company a strong boost towards the end of its last quarter.
Olin Corporation (NYSE:OLN) is also a good dividend stock, paying out a dividend for 345 consecutive quarters. The company’s dividend currently yields about 3.20%. Trading at 13 times earnings, the company looks even cheaper going forward — trading at only about 11 times forward earnings. While the company gives investors exposure to ammunition sales, investors also get exposure to other segments of its diversified business as well — such as bleach, batteries, and food processing chemicals.
The bottom line
If you are bullish on increasing gun sales, Sturm, Ruger & Company (NYSE:RGR) and Smith & Wesson Holding Corporation (NASDAQ:SWHC) are two stocks to consider. I personally like Ruger, because it offers a nice yield and carriers no debt. The shorts looking to tank this stock concern me, however. Increasing earnings and continual gun demand indicate that the stock should be able to recover from the recent sell-off if the positive sales trend continues.
For a more diversified approach, an investor can go with Olin, a major manufacturer of ammunition. While Olin is certainly not a pure gun play, it will give you exposure to the exploding demand for bullets. Olin Corporation (NYSE:OLN) offers less gun-related upside, as opposed to Ruger, who will likely do a better job of capturing gun growth almost exclusively.
Both pay out nice dividends. As long as gun and ammunition sales continue to explode, both stocks make good plays. The long-term picture, however, remains questionable if gun sales inevitably cool down. Sturm, Ruger & Company (NYSE:RGR) will feel the cold more than the more diversified Olin will.
The article Is Now the Time to Jump Back Into Gun Stocks? originally appeared on Fool.com and is written by Joseph Harry.
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