Two Pistol-Packing Stocks

NEW YORK (TheStreet) -- Not every stock an investor owns is in the precise kind of business where the majority wants to invest.

Right now not even the most popular stocks with the most popular products are setting new stock price records.

Looking at my personal portfolio I noticed Apple ( AAPL) was down again while one of my "flat-line" holdings, NYSE Euronext ( NYX) was up 33% on news Intercontinental Exchange ( ICE) has made an offer.

All I can say is "go figure!" I sold my shares of NYX at $32.17 Thursday and I won't look back.

Back on Nov. 2 I recommended in investors begin accumulating NYX when it was around $25.30 per share. Just to keep me humble the stock proceeded to correct and hit an intraday low of $22.25 on Nov. 14.

Even a broken clock is right twice a day so seeing NYX ascend above $33 Thursday seemed like cruel irony, considering the Mayan calendar supposedly tells us that the world as we know it will be ending today. As Shakespeare wrote in Hamlet, there's a time when every investor suffers "the slings and arrows of outrageous fortune" and asks that ambivalent question, "To be or not to be?"

Before I get too eloquent, there's another investment theme unpopular right now and has some negative feelings attached. With the recent tragedies each involving what appears to be one rogue gunman wreaking havoc, the idea of investing in firearm companies isn't a very popular one.

Putting emotions aside, one can't help notice a monumental demand for firearms and ammo. One headline sums it all up: Guns Sold Out at Wal-Mart as Ammo-Magazine Sales Surge.

That may indicate a good buying opportunity for WMT and EBAY, but from my perspective it opens the way for a better investment idea with Sturm, Ruger ( RGR).

In the aftermath of the November elections and the recent mass tragedies there's obviously a kind of anti-crime, pro-2nd Amendment to the U.S. Constitution surge. One friend told me recently he went to Dick's Sporting Goods ( DKS) to buy some hollow-point bullets for his target pistol and was told they'd been sold out for two days. When asked when new supplies would arrive the salesperson said, "Soon, we hope."

Sturm, Ruger offers single-shot, auto-loading, bolt-action, and sporting rifles, shotguns, rim fire auto-loading and center fire auto-loading pistols and single-action and double-action revolvers. The company also manufactures and sells accessories and replacement parts for its firearms.

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

In addition, RGR provides investment castings made from steel alloys directly or through manufacturers representatives. The company sells its firearm products through independent wholesale distributors to the commercial sporting market under the Ruger name and exports its firearms through a network of commercial distributors and directly to law enforcement agencies and foreign governments. Sturm, Ruger was founded in 1948 and is based in Southport, Conn.

The one-year chart below is like a picture that paints a thousand words. You can clearly see that quarterly earnings per share on a year-over-year comparison ending Sept. 29 had grown (according to the company's earnings report) by 61.6% and quarterly revenue growth surged nearly 47%. RGR Chart RGR data by YCharts

While you wait for the share price to regain its former heights (shares tumbled to a low of $40 after the tragedy in Newtown, Conn.) you'll be earning a $1.53-a-year dividend, which represents about a 3.56% yield-to-price if shares are purchased at $43. This is from a company with no debt, total cash (most-recent-quarter) of over $105 million and a dividend yield which represents a sustainable payout ratio of only 34%.

It appears the fear of new gun-control legislation and possible limitations on gun and ammo sales has been depressing shares of Sturm and Smith & Wesson ( SWHC). Those fears are overblown, in my opinion, and the daily evidence is both companies are seeing sales skyrocket. What do you think that will do for EPS and revenue during the current quarter? The answer is self-evident.

The share price of SWHC has retreated to levels we haven't seen since last summer. This in spite of the company's skyrocketing quarterly revenue-per-share and its diluted EPS growth. Again, let the chart give you the powerful picture. SWHC Chart SWHC data by YCharts

Smith & Wesson's price as of Thursday is only $8.25, which represents a trailing PE of less than 10 and a forward (one-year) PE of less than 9. Its price-to-earnings-to-growth (PEG) ratio has dropped to 0.35, an indicator that SWHC is quite oversold.

No wonder CEO James Debney bought another 5,000 shares at $9.82 on Wednesday. Perhaps the public and potential investors don't realize that SWHC provides products and services for safety, security, protection and sports in the United States and internationally.

It offers firearms, handguns, sporting rifles, hunting rifles, black powder firearms, handcuffs and restraints, and firearm-related products and accessories. As of Oct. 31 its quarterly revenue growth was up 48% (year-over-year), and although it does have almost $30 million in total debt it also has almost $58 million in total cash (most-recent-quarter).

So check your "dry powder," financially speaking, as well as your conscience and take a look at RGR and SWHC while the share prices are depressed during these confusing times of uncertainty. No stock looks like an obvious bargain until it has soared 33% like NYX and we look back and wished we'd loaded up when it was "on sale".

As I often do, I remind you to carefully consider position sizing as well as employing a stealth trailing stop system that will send you alerts if your share price drops below or above where you bought it.

Be a disciplined investor who looks for overlooked opportunities. Don't join the ranks of the irrational and fearful. As Warren Buffett says, "Be greedy when everyone is fearful."

At the time of publication the author had positions in RGR and SWHC.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Make smarter trading decisions and provide investment ideas that could help make you richer. Bryan Ashenberg does the dirty work so you don't have to!

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