J Rae Chipera recently published a nice analysis of the pros and cons of investing in the leading small arms companies Smith & Wesson (SWHC) and Sturm Ruger (NYSE:RGR). She presented investors with contrasting options for preferring each company, by arguing that Smith & Wesson has an optimistic view of the near term and hence is making acquisitions and diversifying, while Sturm Ruger is more cautious with share buybacks and hunkering down. Her assumption was that this is a good time to be an investor in gun companies and that investment in each company has merit.
I'm not knowledgeable about the details of the weapons industry, but I am interested in events and trends that indicate major change could be on the way. These qualitative events can have a major impact on investment portfolios. Think no further than the disastrous implosion of the coal industry in the US.
It has become almost a tradition that a mass shooting leads to increased sales of guns in the US, so at first sight the Dallas shootings could provide a further impetus for growth of Smith & Wesson and Sturm Ruger. Indeed SWHC was up 2.76% and Sturm Ruger up 4.85% overnight. So day traders might do well.
I suggest that the Dallas attack on the police force represents a dangerous development that will have to be addressed, and that it brings into focus the urgency of doing something about the current gun issues in the US.
The reality is that the police have not been significantly targeted by gun violence in recent times. In the first 6 months of 2015 and 2016 the number of police killed by citizens was 16 and 20, whereas people killed by police in the same period was 465 and 491. Dallas is significant for two reasons. Firstly it seems that there was co-ordination in the attack on the police and secondly the number killed or injured is dramatically increased.
Societies operate successfully when there is a respect for the law. Change this and a lot changes. Commentary on the Dallas tragedy has focused on revenge for two recent cases where police killed people apparently without provocation. The reason for these police shootings seems to revolve around fears by police for their safety from armed citizens.
So there is a spiral here that has moved into a new phase.
I'm optimistic that the US is strong enough and sufficiently optimistic about its future to address the gun issue, even if it needs to make an unthinkable break with the past. We are currently seeing a quantum change in transforming the energy system from fossil fuels to renewable energy (this is a global issue), which even 5 years ago was unimaginable. The gun issue is parochial as no other developed country has the issue with guns that the US has, even though other countries (e.g. Canada, Switzerland) have similar levels of citizen armament. This is a peculiarly US issue.
I suggest that this is bad news for Smith & Wesson and Sturm Ruger. I would avoid these companies until there is more clarity about the next steps after the Dallas shootings.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.