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Rejected! The "M9A3" version of the classic Beretta M9. Source: BERETTA.

One year ago, the U.S. Army hit gunmaker Beretta with three shots, center-mass. Deriding the company's ubiquitous M9 Semiautomatic pistol as insufficiently accurate, lethal, and reliable, the Army opened a competition to replace it with a new weapon -- the Modular Handgun System.

And then the Army finished the job with a control shot: "The Army's Configuration Control Board [declined] to evaluate the M9A3."

What was wrong with the Beretta M9
Although it's been the Army's most popular handgun for years, with more than 200,000 units in service, long familiarity with the M9 seems to have bred some contempt. "The 9mm doesn't score high with soldier feedback," Army Maneuver Center of Excellence officer Daryl Easlick told Military.com. "It's got reliability issues; the open slide design allows contaminates in. The slide-mounted safety doesn't do well when you are trying to clear a stoppage -- you inadvertently de-cock and safe the weapon system."

But one of the biggest objections to the M9 is that... it's a "9." A handgun that fires 9mm ammunition. And with standard full-metal jacket rounds, a 9mm just doesn't have the stopping power that the U.S. Army says it needs. 9mm bullets, striking targets, tend to go straight through, wasting a lot of their kinetic energy, and risking death or injury to innocents standing behind the intended targets.

So more than just a new "handgun," what the Army really needs is some new ammunition.

And it looks like they're about to get it.

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9mm hollowpoints. Note the divot. Source: Flickr.

Reintroducing the dumdum
As reported by multiple sources this month -- ArmyTimes.com, Military.com, and even Bearingarms.com -- the U.S. Army is poised to adopt the widespread use of hollowpoint (aka "dumdum") ammunition. Furthermore, hollowpoints will be part of the competition to build the new Modular Handgun System -- now officially designated the XM-17.

Essentially a standard bullet with a divot cut out of its nose, a hollowpoint bullet is designed to expand upon impact with a target, delivering all of its kinetic energy (and stopping power) to that target -- dropping that target, and not passing through to endanger bystanders.

Although theoretically prohibited by the 1899 Hague Convention for use in armed conflicts between nation states, hollowpoints are widely used in both the civilian and police markets, and by U.S. Special Forces. Also, because the U.S. has never actually ratified the Convention, there's an argument to be made that it is not binding for the U.S. Army.

But most importantly, the Army really, really wants a new pistol round. One that weighs less, produces less recoil, and delivers a 10% improvement on the stopping power of standard M882, 9mm, 124-grain full-metal jacket NATO ammunition. Hollowpoints promise to deliver these improvements, and so, lawyers permitting, hollowpoints are what the Army will get.

What it means to investors
As of last report, more than 20 gun companies were expected to bid on an Army contract to manufacture an initial production run of 280,000 XM-17s, with deliveries to begin in 2018.

The full list of bidders is still unknown, but Bearingarms notes that "now that [hollowpoints] are going to be used as general issue, the playing field tilts back strongly in favor of" companies producing 9mm handguns. In particular, the website sees the following three companies as the top contenders:

  • A partnership between R&D shop Detonics Defense and high-end target-shooting pistol-maker STI;
  • Germany's Sig Sauer; and
  • Beretta, which is offering its striker-fired APX pistol as an alternative to the outgoing M9 (and the M9A3 that was supposed to replace it!).

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Beretta's new APX Striker-fired semiautomatic hangdun -- it could be a contender. Source: BERETTA.

Incidentally, Bearingarms dismisses Smith & Wesson (NASDAQ:AOBC) and General Dynamics (NYSE:GD) as unlikely to win because their entry "isn't modular. While end users can swap out the backstrap of the pistol to better fit certain hand sizes, the grip is an integral part of the frame." (Bearingarms likewise discounts the chances of such well-known names as Colt, Walther, HK, and Glock).

Be that as it may, investors hoping to win a piece of Modular Handgun System / XM-17 profits for themselves had better hope Bearingarms is wrong -- because Smith & Wesson and General Dynamics are the only two companies named above that are also publicly traded. In short, while the introduction of hollowpoints by U.S. armed forces may be good news for Beretta, and give it a way back into this competition, it's not good news for investors.

Not one bit.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on our virtual stockpicking service, Motley Fool CAPS, publicly pontificating under the handle TMFDitty. He's currently ranked No. 338 out of more than 75,000 rated members there.

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