Three Defense Stocks — one good, one kinda good,…and one not so good. (December 10, 2015)
Lets look at guns and ammo; it seems to be the gift of choice these days. I want to go back to the “well” here and look at Smith & Wesson ( NASDAQ:SWHC ), this is why: You can see this massive 4-day rally here on very, very, VERY high volume. High short interest. This is the move that you would typically, want to fade. In other words you’d look at this and say, “Well this is a big volume crescendo. There’s no way this stock can go higher.” You’re going to want to short this stock. You’re going to essentially short right in to it. Maybe wait for the first down day or something. But if you look at what’s happened here in the past, that hasn’t really worked out too well here on earnings. It hasn’t really worked out too well here or here or here or here.
Anyway, the bottom line is, this is a stock that’s just been moving up for all of this year for various reasons (about 14 of them lately). So when you’re looking here, at the weekly chart, you also see this huge, massive volume. The point is, this is a little bit different, don’t get the wrong idea, I’m not sitting here “banging the table” saying, “Oh, you’ve got to get into Smith & Wesson!” I’m in already so I’m not trying to pump the stock up. I plan on holding this for a while, actually quite a while. I just noticed, on CNBC today, Jon Najarian had been talking about Smith & Wesson ( NASDAQ:SWHC ) and he said, “Oh, you’ve got to buy this stock.” Maybe it was Scott (I forget his name) “Oh! It’s already gone up such and such this year.” And John just said, “Well it’s going higher.” I want you to stop for a minute and forget about the sentiment and basically why everybody’s buying firearms.
And by the way there is anecdotal evidence, I shoot, go to a range all the time. I was just talking to the owner yesterday and he said that the interest has just been off the charts. They’re literally having to expand and hire more people. He said, “We cant’ keep anything on the shelves.” I looked at the shelves and that’s really true. Aside from that obvious point, look at the fundamentals here. They had a good quarter, raised their guidance. The fundamentals actually support a $23.00 price. Their P/E is 26.00 and that’s trailing 12 months. Just go to Yahoo Finance and get that. Their P/E is 26.00; again, trailing 12 months. Going forward, it’s cheap. So the point is, forget, for a minute, about the pattern here and just look at the fundamentals and you can justify paying more for this stock.
Now I wanted to look at a couple of others here. First of all Ruger ( NYSE:RGR ). A fine company, the stock is more expensive and it’s not as good as Smith & Wesson ( NASDAQ:SWHC ). So you can say, “Well I want to be diversified and buy Smith & Wesson and Ruger.” You could do that, but if you look at this chart, in relation to Smith & Wesson ( NASDAQ:SWHC ), it’s really the same move. You’re getting the same move, the thin blue line is Smith & Wesson ( NASDAQ:SWHC ) (blue lives matter, by the way) and the black line is Ruger ( NYSE:RGR ). They move together. So you’re looking at the two of them and this (Ruger) just has a lot more resistance.
The last one I want to look at is Vista Outdoor ( NYSE:VSTO ). Nothing done here. They make ammo, among other things. But it’s really like the third play, if you will, on the self-defense industry, and here you’re just not getting any play. So this is a great example of how charts can work in your favor, even if you’re not really a “chart guy.” If you look at this, maybe the fundamentals are compelling (they’re really not), but then you look at the chart and you say, “I don’t see any money there.” You look at Ruger ( NYSE:RGR ) and say, “Well, I didn’t see a whole lot of money here. I see a whole lot of money has already been made here. So now what the heck am I going to do? Well, that’s alright. Maybe I’ll consider something but let me look at the other one, Smith & Wesson ( NASDAQ:SWHC ). Yes! I see a lot of money has already been made here (thank you very much). But how much farther can it go?”
Then you look at the weekly chart, you look at the fundamentals and you can see that this stock can go a ways more. The point is, again, I’m not “pounding the table” on Smith & Wesson ( NASDAQ:SWHC ). I’m probably going to take this “behind the curtain” here and just be talking about it in the future with Stock Market Mentor members. But really, this is a stock that you can just hang on to and then by the end of the year (I’m talking about 2016), when it’s at, I don’t know, $35.00, $40.00, something like that, then why don’t you email me and ask me whether I think you should sell it or not.
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