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InvestorPlace: Gun Stocks Will Fire Back in 2017

InvestorPlace: Gun Stocks Will Fire Back in 2017

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By    |   Friday, 30 December 2016 07:56 AM

Firearm stocks have recently misfired amid analyst warnings that sales are likely to slow, but others see gun-related shares reloading next year.

Shares of firearm makers have tumbled since Donald Trump’s presidential election amid predictions that consumers will slow down weapon purchases with a Republican in the White House.

“Firearm makers have profited during the nearly eight years of Barack Obama’s administration on fears — misplaced, in the end — that he would tighten gun controls. So great were the concerns that firearm sales tended to jump after mass shootings such as the 2012 Newtown school massacre,” the Financial Times reported.

“The trend continued this year as polls putting Democrat Hillary Clinton ahead in the presidential race prompted heavy gun buying. To the end of November this year, the Federal Bureau of Investigation has performed more than 13m background checks involving firearm sales — nearly as many as for all of 2015, including the Christmas shopping season,” the FT reported.

“We would expect the growth in gun sales to diminish,” says Gil Luria, research director at Wedbush Securities, which follows firearms makers. “There is less sense of urgency for gun buyers, given the election of Trump.”

In a research note this week, Wunderlich Securities analyst Rommel Dionisio predicted industry sales are "likely to slow, following unusually high growth in 2016," CNBC reported.

"This past year, the firearms market experienced unusual demand spikes following certain terrorist incidents," said Dionisio. "Thus, not only does the industry face difficult [year-over-year] comparisons, beginning in December, but also may have seen pull forward of consumer demand from 2017 into 2016."

Meanwhile, California Gov. Jerry Brown approved wide-ranging gun control legislation in July. Starting Jan. 1, the general public in California can no longer buy semiautomatic rifles equipped with bullet-buttons that allow for the quick removal and replacement of ammunition magazines.

Guns purchased before Jan. 1 can be kept as long as the owners register them with the state as assault weapons.

The new gun controls reclassified semi-automatic rifles that have certain features as assault weapons. The features added to the prohibited list include a protruding or forward pistol grip, a thumbhole stock, a folding stock or a flash suppressor. Assault weapons have been banned in California since 1989.

California lawmakers pushed for the new gun controls after a mass shooting in San Bernardino last year. A married couple who were armed with AR15 rifles and 9mm pistols shot and killed 14 people and wounded 22 others at a county health department holiday party. Authorities said they were inspired by foreign terrorist groups.

With all these hurdles, however, InvestorPlace thinks three major firearms stocks are poised to rally next year as “retailers and small businesses are finding ways to work out around the legislations.”

InvestorPlace explains that "firearm retailers and Second Amendment advocates are not sitting back. For instance, Atlantic Firearms, a Maryland-based dealer, will continue to supply semiautomatic rifles under a featureless platform. In addition, a company called AR Maglock invented a device that allows California AR-15 owners to keep the features in their rifles intact, while avoiding the dreaded “assault weapons” legal stigma. Not only are these creative solutions to asinine laws — terrorists and criminals are not worried about compliance — they potentially keep alive a substantial cash-flow source for gun stocks.”

InvestorPlace sees a trio of gun-related shares rallying next year:

  • Smith & Wesson Holding Corp (NASDAQ:SWHC)
  • Sturm Ruger & Company Inc. (NYSE:RGR)
  • Vista Outdoor Inc. (NYSE:VSTO)

“The sports and recreation products manufacturer isn’t a household name. However, firearm enthusiasts would immediately recognize many of the brands under VSTO, including Blackhawk, Bushnell and Savage Arms," InvestorPlace reported.

"What really kept VSTO viable among gun stocks is its wealth of ammunition brands, such as American Eagle and Blazer. Guns and ammo go hand-in-hand, which is why VSTO could be among the gun stocks seeing a surge in 2017.”

Meanwhile, Obama himself might seem an unlikely investor in the firearms industry.

But the U.S. president, a fierce advocate for gun regulation, has money in a pension fund that holds stock in gun and ammunition companies.

Although Obama’s stake is minuscule, worth no more than $30, it reflects a much larger surge of investment.

The president is among millions of Americans buying into gun companies — often unwittingly — as mutual funds have increased such holdings to record levels, according to a
Reuters analysis of institutional investment in firearms companies.

Since Obama was elected in 2009, mutual funds have raised their stakes to about $510 million from $30 million in the nation’s two largest gun manufacturers with publicly traded shares, Smith & Wesson and Sturm, Ruger & Co. That means such stocks are now common in retirement and college savings plans.

The influx has helped to boost both companies' shares by more than 750 percent during the Obama presidency; each now has a market value of about $1 billion.

Beyond mutual funds, such investments also are held in the portfolios of hedge funds and public pension plans, which are harder to track.

(Newsmax wire services contributed to this report).

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InvestingAnalysis
Recent anti-gun legislation may inadvertently trigger a revival in gun stocks.
gun, stocks, firearms, shares
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2016-56-30
Friday, 30 December 2016 07:56 AM
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