How to Profit From the Zombie Apocalypse
Soroush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Zombies. Whether they’ll be born from the rage virus or Hell spilling over, we’ve all come to fear what may creep in the night. Recent events in Florida – see “Naked Man Eats Another’s Face” – have caused many doomsday believers to put down the Mayan calendar for a pickaxe and crowbar in preparation for an all-out undead apocalypse. Assuming that the financial world will still have a pulse when your town is overrun by zombies á la 28 Days Later-style, there are a few ways to profit when the 'it' hits the fan.
Now, the first thing that most people will buy is a weapon to mow down the hordes of face-eaters – here’s hoping those guys are walkers and not runners. Nevertheless, the most efficient form of self-defense is a good sidearm. Gun manufacturers Smith & Wesson (NASDAQ: SWHC) and Sturm, Ruger & Co (NYSE: RGR) have seen their stocks return an average of 112.5 percent over the past year, driven by booming demand for pistols, shotguns, and semi-automatics. Since 2008, gun sales in the U.S. are up by more than 60 percent, eclipsing $31 billion last year. In fact, the number of FBI gun background checks was up 15 percent in 2011, as filings have grown in 24 consecutive months.
Both companies trounced the Street’s earnings estimates last quarter, and sport Price-to-Earnings multiples below their 10-year historical averages. Ruger currently trades at a Forward P/E (10.9X) below that of Smith & Wesson (11.9X), despite the fact that it has grown its EPS at a quicker rate post-recession. RGR also looks like the more attractive of the two from a cash flow standpoint, as it is sitting on $35 million in free cash, compared to SWHC’s $18 million. A consistent history of positive cash flow allows Ruger to give shareholders a solid dividend yield of 3.5 percent, while Smith & Wesson offers no such gift. For the apocalyptic profiteer, RGR is in the best position to maintain its double-digit returns over the coming year.
To avoid being eaten, survivalists must also keep a reliable store of food, most likely of the canned variety. Spam might be the best thing to have on hand, as Hormel (NYSE: HRL) claims a can of the mystery meat has an “indefinite” shelf life. In the second quarter of 2012, Hormel reported record earnings of $0.48 a share, up 17 percent from one year earlier. In the company’s canned food and turkey businesses, profits jumped over 40 percent, driven by strong domestic and emerging market demand. Currently, shares of HRL are trading at sales (1.0X) and earnings (16.7X) multiples below industry norms, despite better-than-average revenue (5.3%) and EPS (18.7%) growth since the recession. Assuming that Hormel meets its year-end earnings target of $1.85 a share, a breakout above $30 does not seem out of the question.
Last but certainly not least, electricity might be in short supply, and it would be wise for any zombie hunter to keep a generator at their home base. Atlas Copco AB (OTC: ATLKY) and Cummins Inc. (NYSE: CMI) are two of the world’s largest suppliers of petroleum-powered generators. Both stocks have more than doubled since the recession, as industrial and residential demand have boosted sales of each company at double-digit annual growth rates over this time. ATLKY (13.4X) and CMI (8.8X) each sport P/E ratios below the industry average (15.0X), despite reporting record earnings in 2011. Analysts are expecting Atlas to finish the year with an EPS of $11.48, and Cummins with an EPS of $10.57, a jump of 8 and 18 percent respectively.
While it remains to be seen if the face-chewing incident in Florida will set the stage for a larger nightmare, these five stocks can help investors at least partially prepare for that army of lifeless zombies knocking at their door. To stay up-to-date on the most killer investment ideas, visit WealthLift INSIDER today.
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