Wednesday, September 23, 2009

Shortage of Bullets May Create Investment Opportunities

It's true. There is a shortage of bullets, and many stores are putting limits on how many bullets a customer can buy. Part of the increase is due to an increase in the demand for handguns, with gun permits increasing by over 25% from last year. Another reason is that gun owners are stocking up on bullets, just like stocking up on gold.

There are a couple of publicly traded companies that manufacture ammunition. Olin Corporation (OLN) makes Winchester Ammunition. The stock has a forward PE of 36 and pays a 4.7% yield.

Alliant Techsystems Inc. (ATK) is another manufacturer of bullets and ammunition to law enforcement agencies and commercial customers. The stock has a forward PE of 8.5 and doesn't pay a dividend. Earnings for the latest quarter were up over 27%.

Smith & Wesson Holding Corp. (SWHC) is primarily a maker and marketer of firearms. It has a forward PE of 10 and has currenly generated negative earnings.

Although bullets and ammo are a smaller portion of the revenues of these companies, there should be some benefit to the bottom line from the increase in sales.

Author does not own any of the above.


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