Has the Smoke Cleared Over the Fate of Gunmakers?

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The senseless murder of 20 children and six adults at the Sandy Hook Elementary School in Newtown, Conn., has seemingly changed the tenor of the debate over gun control. Many advocates for stricter regulations believe this time things are different and that the opportunity to take advantage of the tragedy to move their agenda is ripe.

It's all different now
Until now, gunmakers such as Smith & Wesson (NASDAQ: SWHC  ) and Sturm, Ruger (NYSE: RGR  ) have been able to benefit from the fear over gun control. Sparked by fears that an Obama administration would seize their guns -- both after the first election and with his re-election -- sales of guns and ammunition soared. The stocks of the two publicly traded gunmakers also rode the wave higher, with Smith & Wesson nearly quadrupling in value from trough to peak while Ruger more modestly doubled in price.

That's no longer the case. In the wake of the tragedy, shares of the two gunsmiths have plummeted -- 23% and 27%, respectively -- as investors also sense the country's mood may have changed. TASER (NASDAQ: TASR  ) saw its stock fall 7% over the past week. Dick's Sporting Goods (NYSE: DKS  ) , which has suspended sales of certain guns nationwide, has seen its stock fall almost 8%, while ammunition maker Alliant Techsystems (UNKNOWN: ATK.DL  ) barely moved at all -- possibly because it's not as well known as the weapons makers and its sales are primarily to the military."

Even the National Rifle Association, one of the most effective organizations advocating for its members, has gone dark, with even its Facebook (NASDAQ: FB  ) page quietly disappearing for the time being (though whether it's voluntary or not is uncertain at the moment).

And just this morning, private equity firm Cerebus Capital Management said it was dumping its holdings in the privately owned Freedom Group, the maker of Remington, Bushmaster, and Marlin families of guns. Cerebus acknowledges Freedom Group played no role in the murders and that it doesn't sell its weapons to the public, but only to federally licensed dealers, but calling the Sandy Hook shooting a "watershed event," it decided it no longer wanted to be associated with a gunmaker.

Or is it?
Such emotional events do indeed create environments rich for action. They often spur waffling politicians who fear that moving in a direction contrary to popular opinion will cost them votes. A tragedy like this can get the polls moving in a direction they can run with and ignore the legal maxim that hard cases make bad law.

Yet it's not so clear the public does want stricter gun laws. In fact, guns are one of the more heavily regulated industries, from their manufacture to their ownership. Many states already have excessively strict laws on their books, and it's not always the case that guns that cause crime or tragedies like those in Connecticut are propelled by weapons from states with more lax laws. The guns used in this instance were purchased legally and were registered.

According to a recent Washington Post/ABC News poll taken after the shooting, 54% of the people surveyed say they generically favor stricter gun laws. Yet 71% oppose a ban on handgun sales and nearly half (49%) say we should just enforce current laws (just 32% say more, stricter laws are needed). In essence, they're saying "something" needs to be done to stop the violence, but that doesn't happen to mean passing more laws or preventing people from owning them.

The Oslo, Norway, mass murderer, Anders Breivik, who killed 69 people last year, mostly teenagers at a summer camp, apparently had little trouble obtaining weapons even though that country's gun control laws are some of the strictest in the world.

Although gun control advocates say that's a reason all guns should be outlawed, it speaks more to the need for effective psychological help for the mentally ill. A society that has raised every ailment to victimhood status minimizes the psychiatric needs of those truly sick.

FBI Uniform Crime Statistics show the rate of murders per 100,000 people caused by firearms has been cut by more than half since 1993. Is it just coincidence that the number of states that issue concealed-carry permits rose to 39 this year from 29 in 2002? 

A fog across the way forward
Without question, I'm a strong supporter of Second Amendment rights and believe that an armed citizenry can more effectively deter crime and prevent -- or at least minimize -- the likelihood of tragedies such as that which occurred at Sandy Hook. We have created gun-free school zones so that now there is no defense that can be made should a situation like this arise. Perhaps there ought to be at least one person on a school's premises that is qualified to carry a firearm.

Yet I'm also an investor, and you can't ignore the realities of the day, either. Shares of gunmakers will probably be in for a dark period and will be weighed down by the tragedy for some time to come. Yet because the will of the people is not one that indicates a support for a ban on guns, weakness in their stocks after a period of great growth could be viewed as a buying opportunity.

It's understandable that individual investors will, like Cerebus Capital, want to avoid the taint that may come with owning gun stocks. Many investors feel the same way about tobacco stocks such as Altria (NYSE: MO  ) and Lorillard (UNKNOWN: LO.DL  ) or private jail operators Corrections Corp. of America (NYSE: CXW  ) and Geo Group (NYSE: GEO  ) . There are some lines investors don't want to cross after awhile.

Yet no matter what side you fall on in the debate, the unimaginable pain of loss of the children should have us keeping the families of the shooting victims in our thoughts. It is the one thing we can and should do at this time of the year.

Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 19, 2012, at 3:10 AM, TtEeWw wrote:

    Is this an investor's article - or just another God, Guns and Glory screed? Because it reads like just another pro-gun, arm-everyone, damn the statistics, gun enthusiast article - albeit lightly wrapped up with a dollar sign or two.

    If the NRA is smart enough to stay out of the gun control debate right now, maybe the Motley Fool should too.

  • Report this Comment On December 19, 2012, at 4:30 AM, strelna wrote:

    Disagree. I thought it an interesting and well-balanced article. The fact that the reason for the article is indescribably tragic does not alter its topicality or relevance.

    I hold stock (and will continue to do so) in CAB and RGR: well-run companies.

    Meanwhile, my feeling is that nearly everyone is trying to be broadminded and look for solutions. In doing so, it will be better to think carefully rather than emote.

  • Report this Comment On December 19, 2012, at 6:36 AM, lisalisarose wrote:

    I'm Canadian - so no guns. I do own RGR, SWHC and CAB...... here's another opinion to add to the mix: I think a world where everyone owns these powerful weapons is excessive... downright ridiculous in fact. However, that is nothing to the utter ridiculousness of having this gun filled world and then declaring certain places magically "gun free", guarding them with pictures of pretty ponies and filling them with innocent children. This is so far beyond politics and there is nothing that any "control" can do to fix the situation. The ONLY important question is the safety of the children. Now, in a gun filled world - sadly, unfortunately, horrifically - if you are herding my child away somewhere there had better be someone able to protect him/her. And I fully agree that it is a sick situation, but, staring stark reality in the face: I would rather have one or two carefully psychologically screened and specially licensed school staff members allowed to have on their person a weapon than look at the pictures of the beautiful faces of those brave women who knew they had to try... but had no chance.

  • Report this Comment On December 19, 2012, at 7:29 AM, NOTvuffett wrote:

    RGR looks like an interesting pick at this time, it has been heavily discounted recently and will pay a $4.50 special dividend for holders of record as of 12/21/12.

    Mayan calendar end of the world conspiracy nuts feel free to comment here, lol.

    RGR could be in for some pain ahead, but they are known as a high quality manufacturer that sells some of the most popular guns on the market.

  • Report this Comment On December 19, 2012, at 8:08 AM, beefangusbeef wrote:

    All reports, and all online/brick and mortar stores point to the largest increase of firearms (including post 2008). Background checks are up among state agencies and the national as well.

    I believe that investors dropping these stocks out of anger/fear is driving their prices down rather than the actual (possible) impacts of any new legislation. Emotion driving stock prices, rather than merit, can create a lucrative investing opportunity.

    Coming legislation will likely have an impact on these companies, but nothing like is feared.

    Cool heads prevail in investing.

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