If you're an investor, either a self-directed one or a professional one, you know that monitoring data and trends is an essential part of the homework. Looking for tipping points and inflection points can make all the difference when choosing which companies, out of hundreds, to put your dollars into.
One inflection point that's caught my eye is the recent surge in murders in a number of big American cities like Baltimore, Milwaukee, St. Louis, New Orleans, Chicago, Dallas, Houston and others. It came after years of declines in violent crime in major metros throughout the United States. Reports indicate the number of murders in in Baltimore, New Orleans and St. Louis so far in 2015 is up 33% or more.
It's not just the rise in murders, but also other violent crimes, such as shootings. In Chicago, the nation's third-largest city, the homicide toll climbed 19% and the number of shooting incidents increased by 21% during the first half of the year. In New York City, there were 161 homicides in the city for the first half of 2015 vs. 145 during the first half of 2014. Shootings in the city rose to 542, from 511 in the same period last year.
Whether or not reasons behind the uptick in these violent crimes are faulty economic policies, and the much talked about diverging American population, the reality is the pick up in such crimes is poised to stoke fear.
What do people look to do when scared? They look to protect themselves.
Donning our investor hat, shares of firearms manufacturers Smith & Wesson (SWHC) and Sturm, Ruger & Co. (RGR), as well as the ammunition business at Olin Corp. (OLN), could get a sentiment lift as this rising murder rate story hits the news cycle. Normally, I'm a buy the bullets not the guns investor, which normally means capitalizing on key component suppliers to the major equipment manufacturers.
In the past, however, I've recommended SWHC shares as well as RGR shares. In this case, while OLN shares are far cheaper at 11.4x expected 2016 earnings of $2.22 per share, Smith & Wesson has far less research coverage, has been paying down debt and recently instilled a $50 million buyback program; it is positioned to benefit from the uptick in FBI firearm background checks that climbed year over year in both May and June. That reverses the February-April trend of flat-to-down background checks numbers.
Another company whose products are bound to benefit from the murder rate increase is Taser International (TASR), particularly its video business, given the push for police mounted body-cameras. From Connecticut to South Carolina, more states are equipping cops with body cameras, and that means we should expect more positive press releases as Taser shares additional wins for its Axon body-worn video camera business.
At the time of publication, Chris Versace had no position in any of the securities mentioned.