What A Biden Presidency Means For The Firearms Industry

Joe Biden won't be inaugurated as president for almost two months, but investors would do well to use this time to consider the potential impact his policies would have on certain industries.

Firearms manufacturers are certainly in the crosshairs as both the Democrat's campaign website and his stump speeches have specifically targeted the industry. So let's see what a Biden presidency might mean for gunmakers and potential sales.

Shooting through the roof

Industry observers dubbed former president Barack Obama the greatest gun salesman ever because sales soared during his administration due to fear he would enact strict gun control legislation. FBI criminal background checks more than doubled during his eight years in office, rising from 12.7 million in 2008 to over 27.5 million in 2016.

The industry went into a three-year slump following Donald Trump's upset victory four years ago. Yet in 2020, background checks are rocketing to record levels again, surpassing even the heights reached during his predecessor's administration. Through October, the FBI says the National Instant Criminal Background Check System has already performed 32.1 million investigations.

Notably, while sales began rising in early 2019, the trend markedly accelerated in March of this year as riots and civil unrest broke out across the country. The National Shooting Sports Foundation says background checks jumped 80% that month and have remained at elevated levels each month thereafter.

In September, Smith & Wesson Brands (NASDAQ:SWBI) reported that firearms sales surged 141% to $229 million in the quarter ending July 31 while its gross profit margin expanded by 330 basis points (or 3.3 percentage points) to 42%, a performance CEO Mark Smith called "record-breaking" for the gunmaker.

Sturm, Ruger's (NYSE:RGR) sales in its most recent quarter, ending Sept. 26, were slightly more muted with an increase of just 53%, but earnings shot five times higher to $1.39 per share, continuing a trend of rising profits that led the firearms manufacturer to declare a special dividend of $5 per share in July.

So amid this tumult, what can investors expect from a Biden administration? Here are three broad areas of focus:

Probable

Universal background checks: Biden wants to close the so-called gun show and online gun sales loophole by enacting legislation to mandate all gun sales, even private ones, first go through a background check.

Online sales ban: He would include all firearms, ammunition, kits, and gun parts.

Limit the number of guns purchased: Biden would restrict gun buyers to just one per month.

Possible

Ban certain styles of semiautomatic rifles: Biden has vowed to ban military-looking rifles, by executive order if necessary.

Launch mandatory gun buybacks: He promised to appoint as his "gun czar" former congressman Beto O'Rourke, who famously declared during one of the Democratic presidential debates, "Hell, yes, we are going to take your AR-15, your AK-47" and supports requiring gun owners to surrender such firearms.

Repealing the Protection of Lawful Commerce in Arms Act: The law protects gun makers from liability for crimes committed by criminals, protection that, if weakened, could lead to the bankruptcy of more gunmakers than just Remington Arms.

Unlikely

Defund the police: Biden has given conflicting positions on the issue, saying both he "absolutely" agreed with the idea of "redirecting" money away from police departments, but also saying they should get greater funding. This move would be unpopular with large swaths of the public.

How will the gun industry fare under a Biden administration?

The former vice president has been clear gun control is on the table. During the second Democratic primary debate, Biden answered a question about so-called smart gun technology by saying, "Our enemy is the gun manufacturers, not" the National Rifle Association.

Yet it's not just firearms manufacturers, but ammunition makers too, that could feel the impact of Biden's actions.

Vista Outdoor (NYSE:VSTO), which owns the Federal and Remington brands, among others, and Olin (NYSE:OLN), which owns the Winchester brand, report that ammo sales are surging. Vista said its shooting sports division enjoyed a 26% spike in sales last quarter, while Olin said sales rose 9% but profits soared 51% due to greater volumes and better pricing.

Yet a lot actually depends on whether the Republicans keep control of the Senate because they would undoubtedly stymie most, if not all, legislative efforts to enact stricter gun measures. While that might lead to greater usage of executive orders, even Biden has admitted there are limits to what he can use them for.

What investors will undoubtedly see is sales of guns and ammo shoot higher as these issues are debated, and the stocks of firearms and ammunition companies rise along with them.

This article originally appeared in the Motley Fool.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.