Advanced Senior Member
Join Date: Apr 2011
Location: Livingston county, Michigan
Should You Own Stock In Gun Companies ... ?
With all of the violence unfolding around the world – from the Colorado movie theater massacre to civil unrest in Europe and war the Middle East – it is a fact that many people today are taking notice and arming themselves to protect themselves and their families.
Indeed, the Second Amendment to the U.S. Constitution was put there for three important reasons: 1) safety against criminal elements, 2) national security – our Founding Fathers did not trust a standing army, and 3) as an insurance policy against our own government, to keep it in check.
And despite calls for more gun control by some misguided lawmakers, “the people” are taking matters into their own hands – literally – instead of relying on bureaucrats and statutes and even police to defend their property and their lives. Likewise, if the Federal Reserve continues printing money to prop up our struggling and deteriorating economy, civil unrest is not out of the realm of possibility right here in the United States.
So, why is a veteran market analyst talking about guns?
Gun stocks. And by “stock,” I don’t mean the part of the gun that goes against your shoulder. I mean buying shares in companies that manufacture firearms.
Although sales of guns and ammunition are high (many fear the worst should Obama be reelected), it is not likely that the party is over for the gun stocks after the election, regardless of outcome, since the economy isn’t changing.
In the better areas of the country, people are coming up to gas stations and begging or asking for money. In the areas that are not doing as well, they are coming up to people and either robbing them at gunpoint or even shooting some victims. People don’t have a choice but to protect themselves.
Therefore, if we’re interested in investing with some understanding of current trends, it’s smart to consider firearms stocks.
Short-term, interest in gun shares by investors and traders has been tied to the belief that an Obama victory next month would increase the likelihood of anti-gun laws or executive orders limiting, rationing, taxing or banning firearms or gun-related items.
Pre-election, strength in gun-company shares could, in one sense, be viewed as a bet by the marketplace that Obama will win. On the other hand, a perceived or actual victory by Mitt Romney would be viewed as short-term bearish for the gun shares as he is supporter of the Second Amendment.
Two companies that stand to benefit from this continuing trend are Sturm, Ruger & Co Inc. (RGR) and Smith & Wesson Holding Corporation (SWHC).
Smith & Wesson Holding Corporation 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. The company sells its products under the Smith & Wesson brand, and also the M&P, Thompson/Center and Walther brand names. It also provides metal processing and finishing services, including forging, heat treating, finishing and plating to third-party customers. Based on their own projections, the company expects a 40 percent gain in revenue for fiscal 2013.
Technically, Smith & Wesson has been in a rising channel for 2012, showing solid interest from buyers. With SWHC at the top of its channel, we can expect a pause in its upward movement here, which will allow new buyers to jump on board.
In the “Leibovit VR Gold Letter,” we currently have a price target range of $12-$15 for Smith & Wesson, although a pullback to the $8-$9 range appears likely first.
Sturm, Ruger & Company, Inc. engages in the design, manufacture and sale of firearms in the United States. It 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. In addition, it provides investment castings made from steel alloys directly or through manufacturer’s representatives.
Sturm Ruger posted a 63 percent rise in its EPS last quarter, and analysts expect another jump of 43 percent this quarter. While holders of Sturm Ruger shares had to endure a rather brutal selloff during the month of May, the stock seems to be back on track as it has risen 44.6 percent off its June low.
I currently have a price target range of $58-$63 for Sturm Ruger. A pullback to $38 would provide an optimal buying opportunity should that occur.
While there are some out there that are talking down the growth potential of these two stocks, I feel that personal protection is a business that has plenty of upside left.
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