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  • Go Long Guns (SWHC) (RGR) As Post Shootout Fears Subside 0 comments
    Dec 25, 2012 10:42 AM | about stocks: RGR, SWHC

    Americans have never had to mourn such a loss of young lives as they have in the tragic, recent school shooting.

    Gun makers were initially down on the news, as stricter gun laws would mean less potential customers.

    But this last weekend, sales of Assault weapons exploded at Gun shows, according to Reuters.

    Prices for assault weapons have surged since the Connecticut shooting. At the Kansas City show, Jerome Ratliff bought an AR-15 on Saturday for target practice, paying $925. The same model would have cost only about $400 a year ago, he said. Most models were selling for $1,500 or more.

    The NRA is also a powerful force campaigning for the 2nd amendment, with over 4 Million members. They recently made a call for armed officers to be placed in schools, at an estimated cost of $80,000 per officer per school.

    Wayne LaPierre, executive vice president of the National Rifle Association, said that "the monsters and the predators of the world" have exploited the fact that most schools are gun-free zones. Other important institutions-such as banks, courts and power plants-are protected with armed security, he said.

    The National Rifle Association, the nation's largest gun-rights lobby called for armed police officers to be posted in every American school to stop the next killer "waiting in the wings."

    "The only thing that stops a bad guy with a gun is a good guy with a gun," Mr. LaPierre said in a statement to reporters Friday.

    The NRA proposal has been backed by some School Chiefs, such as in Georgia.

    Considering the NRA proposal which would result in a large purchase of weapons and ammo, and the surge in gun purchases by gun supporters, is this news really a bad thing for gun manufacturers? Or was the sell off a knee-jerk reaction, to be followed by a big recovery? Let's take a look at the companies, the current gun market, and the practicality of outlawing guns in the United States.

    Company snapshots

    Strum, Ruger & Company (NYSE:RGR) is already off it's all time highs near 60. It's nearing a support line, but technical analysis isn't important in this case.

    Sturm, Ruger & Company, Inc. is engaged in the design, manufacture, and sale of firearms to domestic customers. The Company operates in two segments: firearms and investment castings. The firearms segment manufactures and sells rifles, pistols, revolvers, and shotguns principally to a select number of licensed independent wholesale distributors primarily located in the United States. The investment castings segment manufactures and sells steel investment castings. The Company offers products in four industry product categories, which include rifles, shotguns, pistols, and revolvers. The Company's firearms are sold through independent wholesale distributors, principally to the commercial sporting market. The Company's customers include Jerry's/Ellett Brothers, Davidson's, Sports South and Lipsey's. Approximately 99% of the Company's total sales, during the year ended December 31, 2011, were from the firearms segment.

    Smith & Wesson (NASDAQ:SWHC) is also off it's highs of 11.25 to roughly 8.12.

    Smith & Wesson Holding Corporation (Smith & Wesson) is a manufacturer of firearms. The Company manufactures a range of handguns, modern sporting rifles, hunting rifles, black powder firearms, handcuffs, and firearm-related products and accessories for sale to a range of customers, including gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and globally. It sell its products under the Smith & Wesson brand, the M&P brand, the Thompson/Center brand, and the Walther brand. The Company manufactures its firearm products at its facilities in Springfield, Massachusetts and Houlton, Maine. On July 26, 2012, it sold all of the assets of Smith & Wesson Security Solutions, Inc.

    Both companies pose the same opportunity, although their products vary slightly.

    Current Gun Market

    US Firearms manufacturers will export $4.4 Billion worth of guns and ammo to other countries this year. The total market is about $11 Billion and employs more than 35,000 people. Customers also include governments, the military, private companies, and foreign buyers. Since 9/11, and the economic crisis, sales have been booming. Even agencies such as the Social Security Administration have been big buyers. Ammunition a big part of revenues:

    Here's how one gun lobbyist put it: "You make a product for $300, and somebody could buy this revolver and, by the time they are 80, they'll have fired $10,000 worth of ammunition through it."

    Making guns illegal

    Gun control realists, many of whom live in the South or in rural areas, grin when gun control and gun bans are proposed. They imagine the reality of enforcing something like this; it's simply impossible, especially in rural areas. Places like cities, where you have certain access points such as bridges or tunnels, could enforce restrictions at checkpoints at these entry points. But how would you enforce something like this in rural areas? Could they make it illegal to own guns, of course. Prohibition outlawed the use of alcohol, and look how that ended. Not only was it finally overturned, it gave rise to what we colloquially refer to as the Mob, which always existed but didn't have such power and influence until prohibition.

    Another point, while the sentiment of gun bans is strong, especially after a shooting, the sentiment to allow guns is almost always stronger. Recently thousands of gun lovers have signed a petition to deport British citizen Piers Morgan for the mere mention of gun control. Also there has been little realistic proposals to control or ban guns, as pointed out by the NRA and the recent legislation.

    The issue of gun ownership is one held passionately by owners. Trying to take away their guns, may not prove to be a good idea.


    Both these companies are manufacturers of products that will be needed regardless of the economic situation. But if things deteriorate, they will become even more valuable and in demand. Even hedge funds and other buyers are snapping up these stocks. Considering both are off their peaks, this looks like a good opportunity to buy and hold.

    Disclosure: I 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.

    Stocks: RGR, SWHC
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