"I think we have to look at the fact that we lose 90 people a day from gun violence. This has gone on too long, and it's time the entire country stood up against the NRA."
-- Hillary Clinton
"Unfortunately, our politics have conspired to make it as easy as possible for a terrorist or just a disturbed individual like those in Aurora and Newtown to buy extraordinarily powerful weapons."
-- President Obama
Early in the 2016 presidential campaign, Sen. Bernie Sanders and former Secretary of State Hillary Clinton feuded openly and often on the issue of gun control. Now, the tragic shootings in Orlando, Fla. have put gun control back at center stage.
This week, the U.S. Senate debated four separate bills to further regulate the use and sale of guns, touching on ideas ranging from beefing up the background check system to banning the sale of firearms to anyone on a terror watch list. None of the bills passed in the Senate, but gun control remains a major topic among the media and politicians.
In the immediate aftermath of Orlando, retired generals David Petraeus and Stanley McChrystal and former astronaut Mark Kelly joined a coalition of military veterans calling for new laws "to keep dangerous people from having easy access to guns." McChrystal in particular has averred, "I personally don't think there's any need for [assault weapons] on the streets and particularly around the schools in America."
Define the term
Firearms characterized as "assault weapons" played a role in the mass shootings at Cleveland Elementary School in California in 1989, at Columbine in 1999, at Sandy Hook Elementary School and in Aurora, Colo. in 2012, the Umpqua Community College shootings in Oregon in 2015, and now, in the attack in Orlando as well.
But what exactly are "assault weapons"?
According to popular pro-gun website assaultweapon.info, the phrase "assault weapons" is often confused with the more precise term "assault rifle". Specifically, an assault rifle is a machine gun such as an M4A1 carbine (pictured above), which can fire both semi-automatically (pull the trigger once, and one bullet comes out) or automatically (hold the trigger, and the weapon keeps firing till empty).
With a few exceptions, the sale or purchase of assault rifles is illegal in the United States -- and has been tightly regulated since 1986.
An assault rifle is an assault weapon, but the converse is not necessarily true
In contrast, weapons that resemble assault rifles cosmetically but are incapable of full-automatic fire have been popularly referred to as "assault weapons" -- a term that gained legal significance with the federal Assault Weapons Ban in 1994. In the U.S., this class of firearm includes such semi-automatic rifles as the AR-15 and certain AK-47 variants, as well as large semi-automatic pistols such as the TEC-9 and semi-automatic carbines firing pistol-caliber ammunition.
The Wall Street Journal sums up the difference thusly: So-called assault weapons "look like machine guns, but they do not function like machine guns." Rather, they "function like every other normal firearm -- they fire only one bullet each time the trigger is pressed."
A distinction with differences
The 1994 Assault Weapons Ban expired in 2004 and was not renewed. Still, one question remains: If true assault rifles (i.e., machine guns) are already mostly illegal, why would the government also ban semi-automatic weapons that only resemble assault rifles while permitting the sale of .22-caliber target rifles, .308-caliber hunting rifles, and other firearms that operate exactly the same way?
Some critics see a difference in muzzle velocity. Citing data from gun manufacturer Sturm, Ruger (NYSE:RGR), PublicHealthWatch has argued that the muzzle velocity of an AR-15 rifle firing 5.56 NATO or .223 caliber ammunition can be several times higher than the velocity of a .22 target rifle, for example, with correspondingly greater destructive power.
Magazine capacity is another factor. Generally speaking, you can pack more 5.56 mm or .223-caliber ammunition into an "assault weapon" magazine than a similar-size magazine on a more powerful .308 hunting rifle. That said, there are .308 magazines for sale that can carry 50 rounds, and large-capacity .22 magazines can hold in excess of 100 rounds -- just as there are .223-caliber drum magazines holding 100 rounds. And keep in mind that the typical .308 bullet weighs two to three times as much as the 5.56 NATO.
Honestly, I think the Violence Policy Center, a gun control organization, hits closest to the mark when it argues in favor of banning "assault weapons", because those are the easiest targets. Says VPC: Assault weapons' "menacing looks, coupled with the public's confusion over fully automatic machine guns versus semi-automatic assault weapons ... increase the chance of public support for restrictions on these weapons."
What does it mean to investors?
So "menacing looks" may be the crux of the matter. When you get down to it, the movement to ban assault weapons begins to resemble a marketing campaign -- and, in fact, a marketing campaign that worked once before, in 1994.
Will it work again? And what would that mean for investors in the gun industry?
Last week's failed efforts to enact new firearms regulations in the immediate aftermath of Orlando suggests gun reform efforts will not succeed this year. But with a presidential election in the offing, and the potential for a change of control in the House and Senate, there's no telling what might happen next year.
Just the chance of new regulation could send gun owners stampeding to the gun store to stock up on guns 'n' ammo "before they ban them." And this, in turn, could send investors stampeding to buy shares of gun stocks. But which gun stocks in particular? Which companies make "assault weapons" anyway, and which companies' stocks are likely to benefit?
Round up the usual suspects
It's almost easier to tell you who doesn't make them. Sturm, Ruger, Smith & Wesson (NASDAQ:SWBI), and even privately owned Bushmaster all make various versions of the AR-15. And while Bushmaster is not publicly traded, Sturm, Ruger and Smith & Wesson most definitely are -- they're also the two most likely beneficiaries of surging demand for firearms.
Both Sturm, Ruger and Smith & Wesson make AR-15 variants that fit the popular conception of what an assault weapon looks like -- even if their guns are not assault rifles. And while the average price-to-earnings ratio of stocks on the S&P 500 is more than 24 times, both Sturm, Ruger and Smith & Wesson sell for P/E multiples in the mid-teens -- making them attractive investment options.
As the drumbeat for gun regulation gets louder, the case for buying Sturm, Ruger and Smith & Wesson stock will only get stronger.