Smith & Wesson - Go Ahead, Make My Portfolio

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SWHC Smith & Wesson Holding Corp.

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June 18, 2009

Since President Obama took office in January, he's been intensely focused on turning the economy around. However, there's one sector of the economy that's boomed and President Obama can take all the credit: sales of firearms.

Some store owners report that their sales have climbed as much as 80% since the president took office. The irony in all this is that President Obama hasn't proposed any gun control legislation. Still, buyers are apparently not willing to wait around to find out any details of what could happen. Perhaps the uncertainty itself is causing the mad rush to buy guns. Whatever the cause, some of my favorite stocks in the firearms sector are red hot.

One of my top-rated gun stocks is Smith & Wesson Holding Corporation (SWHC). The company was founded in 1852 and is famous for its revolvers, most notably Dirty Harry's .44-caliber pistol.

Obviously, this is one of the biggest names in the firearm industry. Smith & Wesson makes handguns, police accessories and gun safety products, but also sells a wide variety of other items.

Did you know that Smith & Wesson also makes mountain bikes? It's true. The company's products include mountain bikes outfitted for police officers, car alarm systems and even apparel like watches and sunglasses that cash in on the famous Smith & Wesson brand.

Expect to See Good Earnings News on Monday

The key point I want to make is that even without the concern of gun control legislation, Smith & Wesson is still a fundamentally superior stock.

Last quarter, the company's earnings rose to $2.4 million, or five cents a share, compared with a loss of $1.8 million, or four cents a share, in the same quarter a year earlier. Not many companies have gone from losses to gains this year. Sales rose 25.9% to $83.2 million, compared with $66.1 million, thanks to a 46% surge in handgun sales from strong consumer demand as well as law enforcement purchases.

The recession has taken a bite out of Smith & Wesson's hunting products recently, but the sales of handguns and tactical rifles offset any declines. This helped Smith & Wesson at earnings time last quarter. Wall Street was expecting two cents per share on sales of $74.1 million, so Smith & Wesson posted a 150% earnings surprise and a 12.3% sales surprise!

See Which Other Gun Stock Made My List of 5 Best Stocks to Buy Now

This is an especially good time to add shares of Smith & Wesson to your portfolio. The company will release its next earnings on Monday, June 22, and I expect another solid showing.

Wall Street expects earnings of nine cents a share on total sales of $90.83 million. In my opinion, that's way too low; Smith & Wesson should easily top those numbers.

Another reason this a good time to buy is that the shares have pulled back from last month's high of $7.52. Smith & Wesson is clearly benefiting from government spending via military and law enforcement purchases and is weathering the economic downturn just fine.

Smith & Wesson is a good buy.

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