Gun Makers On Target for Growth

Don't count the gun makers out just yet. If FBI background statistics are any indication, they're going to have blowout performances in the months ahead.

On target
Before an American can buy a gun, the FBI must investigate them and their criminal record, and the data show that the agency investigated the backgrounds of more people than any time before in the month of December. Over 2.7 million individuals were checked out last month, a record number that surpassed the record hit in November, when more than 2 million background checks were conducted. It indicates that a lot more people are interested in self-defense amid talks of renewing stricter gun control.

Of course, the FBI says that doesn't translate into a prediction of guns sold, but it's safe to assume that if millions of people are willing to undergo the scrutiny of an FBI background investigation, they're going to be buying more guns.

Nearly 20 million have undergone background checks in 2012, 19% more than the year before, which itself was a record year. Both Sturm, Ruger (NYSE: RGR  ) and Smith & Wesson Holding (NASDAQ: SWHC  ) , the only two publicly traded gunslingers, had blowout years, with their shares jumping 45% and 100%, respectively, despite the fallout from the Newtown, Conn., massacre. It stands to reason that will carry over into 2013.

A quest for control
Fears of gun control have been a concern ever since President Obama was first elected to office, and while that didn't pan out in his first term, it gained new credence upon his reelection and freedom from the constraints of having to campaign again. That was likely the reason we saw November's background checks spike, but it wasn't until the events unfolded at the Sandy Hook Elementary School that the debate really took off and the possibility for a renewal of an assault weapons ban seemed possible.

Reactions to the murders have been knee-jerk. Dick's Sporting Goods, for example, suspended sales of certain guns nationwide, while Wal-Mart and Cabela's did so in certain stores around Newtown. And while many gun control advocates point to the "military-style" AR-15 as the kind of gun no civilian needs, the fact is, the differences between that "assault weapon" and those that would be legal are cosmetic, with muzzle shrouds or pistol grips offering more comfort for the shooter, but doing little or nothing to the firepower or lethality of the gun.

Others point to violent video games such as Activision Blizzard's (NASDAQ: ATVI  ) popular Call of Duty as contributing factors and want to regulate their content as well.

More guns, less crime
Interestingly, while gun control advocates focus on rifles as the object of their ire, FBI crime statistics show more people are killed every year by blunt objects such as hammers and clubs than by rifles. In 2011, 323 murders were committed with a rifle, but hammers and clubs accounted for 496 murders. Knives claimed 1,694 lives.

Violent crimes with guns have declined for three straight years and the murder rate by guns is at its lowest point since at least 1981, according to FactCheck.org. And all of that is occurring as gun ownership has increased. So it's not just talk of grabbing guns that's spurring the sale of guns -- federally licensed gun dealers across the country are reporting booming sales, particularly at gun shows  -- but it's the desire for self-defense, too.

Waiting in line
Smith & Wesson reports that its backlog at the end of October was $322 million, a 122% increase over the year-ago period. While it did report a 15% drop sequentially, the gun maker believes it's because its increased production capacity improved its ability to meet demand. Ruger's backlog stood at almost $250 million at the end of the third quarter, a 258% increase from 2011.

Talk of gun control legislation is on everyone's lips, whether for or against, and though momentum would seem to have shifted in favor of stricter laws, that's not so certain. Hedge funds might drop owning gun makers -- like Cerberus Capital Management did when it said it no longer wanted to be an owner of Freedom Group, the maker of Remington and Bushmaster guns -- but investors may find they want to stay locked and loaded with Smith & Wesson and Ruger because they're likely going to report numbers that shoot out the lights.

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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 January 08, 2013, at 4:33 PM, michaelkm88 wrote:

    Unfortunately we cannot ban fertilizer, clubs, hammers, blunt objects, etc. because they are needed for everyday life for a majority of people. Why do people want to ban guns? Low hanging fruit... Nobody needs them for everyday life, and the Sheeple that agree with the politicians, lobbyists, and others do not bother to look up the facts. FBI website shows that violent crime has DECREASED by 50% in the past twenty years. It's a sad day when the facts are gone... I hope I inspire some people to do fact checking before jumping on any band wagons and make a logical choice.

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