Gun Industry Stocks Keep Ticking Up

 | Apr 11, 2013 | 6:00 PM EDT
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The U.S. Senate today voted to advance deliberations on new gun control measures introduced by Nevada Senator Harry Reid as S.649 Safe Communities, Safe Schools Act of 2013.

In response, the public companies that would be most affected by new restrictions are all up dramatically.

Gun manufacturers Smith & Wesson Holding (SWHC) and Sturm Ruger (RGR) are up about 2.4% and 1% respectively on the day, while ammunition manufacturers Alliant Techsystems (ATK) and Olin (OLN) are up 1.5% and 0.13%.

I last discussed this sector and these stocks a year ago in the column "Four Weapons Stocks and Their Targets."

Since then, Smith & Wesson has almost doubled while Sturm Ruger and Olin are each up about 18%. Although I did not discuss Alliant Techsystems in that column, it too is up about 28%.

Sturm Ruger, Olin and Alliant also pay dividends of 3.3%, 3.2% and 1.5% respectively. Smith & Wesson has no dividend. Although I doubt investors have been buying these stocks as income vehicles, the companies are profitable, with revenues and earnings growing commensurate with the legislative agenda intended to curb their businesses.

It is also interesting to note that the personal security manufacturer Taser International (TASR) is also 62% in the past year; most probably for the same reasons that are driving up the others.

The two most notable events that have occurred in that period that concern these companies are of course the July 20, 2012, theater shooting in Aurora, Colo., and the massacre at the Sandy Hook Elementary School in Newtown, Conn., on Dec. 14 last year.  

These events had yet to occur when I discussed these companies last year, but these stocks already had been outperforming the market in general since I had previously discussed the potential of these stocks in the wake of the rise of teen flash mobs in the U.S. and the Arab Spring revolutions that swept through the Middle East throughout 2011.

I do not know if the private sector's economic malaise in the U.S., which is causing unemployment rates to remain very high, especially so for the young, contributed to the Aurora or Newtown events, but it is certainly contributing to the increase in interest in these companies.

Unless private-sector employment and economic activity increase or the federal government focuses on the creation of a domestic jobs program, the social tensions driving investor interest in these stocks and consumers interest in their products will continue.

Given the ongoing debate over the federal budget and the continuing lack of interest in lending being exhibited by the banks, it is probable that unemployment will remain elevated and that these companies will benefit, regardless of the gun control measures being considered by the legislature.

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