Guns, Oil, and the End of Financial Enabling

When Americans ponder guns, some invoke our country's emphasis on freedom. After all, the Second Amendment of the Constitution preserves the right to own firearms. However, as a free country, nobody ever said any of us have to enable the manufacturers by trying to profit from firearm sales.

Many socially responsible investors and funds won't invest in or provide support for weapons companies of any kind. However, in an interesting turn of events, General Electric (NYSE: GE  ) has been taking an unexpected stand against firearms.

Gun sales may not be so sporting
GE's lending arm, GE Capital, has announced that it will no longer provide consumer financing for firearms purchases from gun shops. Granted, this does very little other than raise awareness about Americans' relationship with guns. GE Capital crafted this rule back in 2008, but its policy formerly allowed some existing customers to skirt the policy.

Retailers that only sell guns and gun-related equipment represent just 1% of gun retailers -- a measly 75 shops. To compare, highly visible discount retailer Wal-Mart (NYSE: WMT  ) , for example, stocks guns in about half of its stores. Sporting goods stores like Dick's Sporting Goods (NYSE: DKS  ) and Cabela's (NYSE: CAB  ) also sell guns. Obviously, guns are by no means the total foundation of their businesses, and therefore policies like GE Capital's have no bearing on them or their customers.

Wal-Mart's gun sales are no small thing. In February, guns and ammunition were selling so quickly that Wal-Mart had to limit how much ammo shoppers could buy in one day, and some types of guns sold out. Last fall, Wal-Mart's guns sales had increased by 76% in the year thus far.

A quick check of Cabela's website presents a classy-looking "Gun Library," and it looks like hunting season on Dick's firearms webpage, which presents its selection of firearms including the colorfully named "Predator/Varmint" rifle. Company filings reveal some interesting statistics about these mainstream gun sellers. In its risk factors section of its Form 10-K, Cabela acknowledges possibilities of regulation and adverse litigation related to firearms sales.

The fact that it says such risks could negatively impact its revenue tells you a bit about the importance of firearms to its business -- and the possibility of material adverse effects to its business in worst-case scenarios. Guns are lumped into Cabela's hunting equipment category, which represented a significant 45.3% of the company's sales in 2012.

Dick's Sporting Goods' 10-K discloses similar risks associated with its firearms sales. However, the company does not break out the revenue associated with firearms or hunting gear.

Gun sales may not be so sporting
GE Capital's stance sends a message, even if it's faint. According to The New York Times, the company cited "industry changes, new legislation, and tragic events" in its decision.

Other organizations have been sending strong messages through divestment campaigns. On Jan. 19, the California State Teachers' Retirement System, or CalSTRS, announced that it was beginning the process of divestment from assault-weapons manufacturers. CalSTRS is the largest educator-only pension fund, and its portfolio represented $154.3 billion as of last November. That move came after teachers expressed their desire to remove such companies in the aftermath of the Sandy Hook tragedy in Connecticut.

Meanwhile, private equity concern Cerberus Capital Holdings decided to sell Freedom Group, which makes the Bushmaster rifle that was used in the tragic school shooting.

Divestment campaigns are by no means limited to firearms, but also have occurred in other areas that could be considered socially irresponsible. For example, a major campaign urging shareholder divestment from fossil fuel companies is currently under way. Climate advocacy group 350.org has gone on the road with its message, and sustainability advocacy groups like Ceres have been warning that fossil fuels will be catastrophic for companies and the economy over the long haul.

Climate change also shows signs of stunting many industries' financial futures; Standard & Poor's and the Carbon Tracker Initiative recently warned that fossil fuel companies are running toward far riskier futures as climate change plays out.

Freedom to choose
Some investors may shrug off the spirit of socially responsible campaigns in their many forms as frivolous or even dangerous to their returns, but they might want to think past next quarter or even next year. Many of these issues are not only distasteful, but they represent major risks to investment health over the long term.

Regulation and litigation of any kind eventually can result in material risk -- and falling sales, profit, and capital. At some point, these issues certainly impact the bottom line.

There is one upside to holding such companies, and that is the ability to practice activist investing and trying to have discussions with corporate managements and boards on the issues. However, holding stocks of some of these companies, for many of us, is an odious thought, and beyond the emotional element of investing, over the long haul their financial futures are at risk.

Investors can gun for more positive investments. This is more significant than ever given increasing attention to whether individuals, investors, and institutions should keep enabling industries that profit from dangerous products. We all do have the freedom to choose -- and we can use that freedom to avoid painful industries.

Learn more about investing in GE
For GE, the recent financial crisis struck a blow, but management took advantage of the market's dip to make strategic bets in energy. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE today. To get started, click here now.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.


Read/Post Comments (4) | 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 May 01, 2013, at 4:44 PM, eng99 wrote:

    A couple hundred years ago, if you owned slaves and decided slavery was wrong, you didn't sell you slaves to someone else, you freed them. All CalSTRS is doing is selling their slaves to someone else. If they really thought owning these shares was wrong, they would burn them and any dividend checks they received.

  • Report this Comment On May 02, 2013, at 6:16 AM, dtw50 wrote:

    Investing and political activism.... Sounds like an opportunity for me to pick up some tobacco and firearms stocks on the cheap.

  • Report this Comment On May 02, 2013, at 3:22 PM, devoish wrote:

    I love your commenters! See how easily they defeated your liberal activism!

    First try to think of stocks and people as if they are same thing. Imagine the horror of seeing two loving shares of XOM, companions in the same portfolio for decades, after dripping together and building a family who love each other deeply, torn apart because you sold them to different investors in a your attempt to do something good. How would you feel about your attempted do-gooding then? Share numbers 190567544 and number 206487609 seperated to opposite coasts and the poor little drips sold off to Spaniards.

    But seriously, these are the first two arguments against you?

    CalSTrS did not do enough to honestly care! They should do more! More I tell you, More! Give away money if you care!

    or, in comment two.

    You gave away opportunity! You are giving away money you fool! You lose!

    Fun stuff, isn't it? You are wrong to try to do what is right because you gave away money and wrong to try to do what is right because you did not give money away.

    You are so easily thwarted, and very quickly too.

    Meanwhile over on the left side of the world, Naomi Klein just wrote an article about activists campaigning for public institutions and investors to divest themselves of fossil fuel stocks and into renewable's in order to slow global warming before it kills us. A campaign that has grown to 4 countries, over 100 cities and states and over 300 universities in a very short time.

    Fun stuff,

    and

    Best wishes,

    Steven

  • Report this Comment On May 02, 2013, at 7:25 PM, jtice01 wrote:

    I thought thus was a website for financial advice? If I wanted to read slanted hitpiece editorials I could just go to any active political forum.

    A more interesting topic would have been the effect of proposed legislation on actual gun sales and stock prices as compared to last year.

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