Who can forget the .44 Magnum immortalized by Clint Eastwood in Dirty Harry. Gunmaker Smith Wesson also made history with its .38 Special, a standard police revolver for a century. But that's the trouble with the venerable, 154-year-old Springfield, Mass.-based gunsmith: too much living on legend.
Decades back, Smith Wesson held a near-monopoly on the law-enforcement market. Then SW's market share collapsed because the company failed to scoot fast enough from revolvers into pistols and higher-powered firearms that help outgunned cops fight the bad guys.
Lee Schulteis, who runs Alpha Hedged Strategies Fund, a mutual fund that employs hedging strategies, thinks SW (symbol SWB) is being reborn. He dates the turnaround from when new leadership took control in late 2004. Leveraging a highly recognizable, respected brand name (thank you, Hollywood), SW beefed up advertising and marketing to the recreational market and developed new lines of weapons, such as pistols and rifles for the military, and less-than-lethal technologies. The company is winning local law-enforcement contracts again and has garnered a series of contracts with federal agencies, including one to supply 75,000 guns to the Afghan army.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Smith Wesson's factories are running at only 50% of capacity. Schulteis sees that as a good thing. It's one reason he thinks the arms maker is in a strong position to win a U.S. military contract for 645,000 pistols worth between $300 million and $500 million. It helps that two rival bidders, Beretta and Glock, are both foreign outfits.
Revenues are growing 20% a year, but Smith Wesson has predicted a 50% increase in earnings, to $7.5 million to $8 million, in the fiscal year that ended April 30. The company forecasts profits of $12.5 million, or 30 cents a share, in the current fiscal year. Given the rate at which SW is winning new weapons contracts, Schulteis thinks the company could easily exceed earnings expectations.
The stock has gone ballistic, tripling to $6.62 since early 2005. Schulteis thinks the stock can trade at $9 to $10 over the next six to 12 months, and at $12 to $15 if Smith Wesson pulls down some large contracts. The company currently has a market value of about $260 million.
--Andrew Tanzer
-
Snowbirds: Avoid These 3 Sneaky Insurance IssuesBefore snowbirds depart for their winter retreat, they should check their insurance coverage for surprises that might arise, or else be on the hook for repairs.
-
Hang in There With This Value FundPatience is required for investors in the Dodge & Cox Stock Fund, but its long-term outperformance proves it's worth the wait.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
If You'd Put $1,000 Into UnitedHealth Group Stock 20 Years Ago, Here's What You'd Have TodayUNH stock was a massive market beater for ages — until it wasn't.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
