Election Play - Buy Smith & Wesson

2020年10月16日

With the election coming up, it is hard to imagine any other scenario besides a blowout. Regardless of your own political beliefs, Democrats are outnumbering Republicans in early voting which is objectively a huge advantage. Democrats seem to be motivated on removing Trump, and it is showing with the surge in voter registrations and early votes cast.

With that being said, Smith & Wesson's financials are solid and are benefiting from the pandemic's increase in gun sales. Not only that, based on The Economist's Election Model, Democrats are favorites in winning a majority in the Senate and the presidency. This will cause gun sales to go up even more. The stock is already about fair value, and it is hard to imagine not going up from here.

Long.

2020年10月21日

交易开始

Holding my position still with an average cost of $16.79. The price target is still $25, and I am adding more to my position every time the price drops below $16.50. I am willing to hold this stock for as long as needed since it has a relatively strong balance sheet, and gun sales are still high.

2020年10月31日

交易开始

The stock is still bouncing around between $15 and $18, with it unable to make any huge swings in either direction. The shorts seem to be pushing the stock down to buy it lower because they know that Smith & Wesson's sales this year are off the charts. Smith & Wesson was able to pay down a significant portion of their debt with the increase in revenue and even paid a dividend this quarter.

A Biden win will cause the aggregate demand for guns to remain high out of fear of increased regulation. Any legislation on firearms is unlikely to have a major impact on gun sales since right-leaning judges currently dominate the courts. Gun control is also highly unpopular in most states, and it is unlikely that Democrats will pass major gun legislation successfully. It will be a stupid move if they have any intentions of remaining in office.

All I am saying is, this stock is volatile, and that is not a bad thing. If you are more risk-averse, you could look into opening a straddle option position on Monday, and as long as the stock makes a big move after the election, you will profit. It does not matter which direction.

Personally, I am buying the dip because I think the stock is due for a bullish move to about $25. I am willing to hold if it comes down to it, but I doubt I will need to.