General Question

LuckyGuy's avatar

Morality aside, is this a good time to invest in gun manufacturing companies?

Asked by LuckyGuy (29268 points ) January 9th, 2013

For the purposes of this discussion, let’s assume you are only interested in making money in the stock market and are not concerned with the moral issues.
I also realize no one is a fortune teller. I am just looking for opinions.

On one hand, I’ve been hearing that sales and orders are at unprecedented levels. Companies like Smith and Wesson and Ruger are running at full capacity, and expect to be for a long while. It appears they will be extremely profitable for the foreseeable future at least in the short term.
These companies are famous for their handguns and do not make the Bushmaster or AR-15s that might be outlawed in various states.
On the other hand, maybe their long term outlook is similar to that of buggy whip manufacturers of old – interesting relics of our past.
Since “Wall Street” is supposedly only interested in short term growth, and quarterly reports, wouldn’t this be the obvious time to buy in? Why isn’t everyone doing this? What am I missing?

Disclaimer: I am not a stock broker or financial planner. Don’t buy these stocks. Don’t listen to me. Your mileage may vary.
I do own products made by both of these companies and they are always of extremely high quality and performance.

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28 Answers

Adirondackwannabe's avatar

A lot of pension funds are dumping their firearms manufacturing holdings, which should keep some downward pressure on the stock prices. The demand for firearms and accessories is high, so their earnings should be good. With those kinds of fundamentals I’d say yes.

diavolobella's avatar

Perhaps, but it’s never a good idea to invest heavily in something when the level of buying is due to some sort of panic, so I’d invest conservatively, if at all. The panic ends and you are loaded up with stock that then loses value. You probably already know all that. I definitely wouldn’t invest in automatic weapons companies that sell mainly to the general public (as opposed to the military), because I have a feeling that’s going to go away ere long.

LuckyGuy's avatar

I would never invest a lot in anything. It seems to me that if some institutions are dumping them for “moral reasons” that is pushing their prices artificially low. I’d expect there will be other venture capitalists on the other side of the table lining up to buy them for profit reasons.
This will be fun to watch. The forces of morality, panic, clear thinking, investment potential, long term, and short term gains all mixed into the pot and pushing in different directions.
I only know that today they make really good products that customers want.
What does Facebook make?

ETpro's avatar

I would call it a high risk/high reward type investment. Sales of firearms are way up right now, but how long will that hold? Further, public sentiment for tighter firearm safety is way up right now. Will that result in legislation closing the background check loophole, outlawing high capacity clips, modifying receivers to prevent bump firing of semi-automatics (note it’s only 2 minutes or so but bump firing doesn’t start till near the end of the video—watch it all the way through.), or even altogether outlawing sales of assault rifles? Till the legislative drive settles, uncertainty may depress stock prices. If legislation depresses sales, that too will lower stock prices.

If you do get in, it’s likely to be a short ride to the peak and profit will depend on sensing that you’re near the peak and jumping off before the roller coaster starts back down.

mazingerz88's avatar

Morality aside, the NRA would probably say, Yes, by all means.

LuckyGuy's avatar

@ETpro Ruger and S&W don’t make the items that are out of favor now. They make high quality handguns. Those already require background checks, have limited capacity magazines, and are tightly controlled (compared to rifles and shotguns).
It would seem that if “assault rifles” (let’s not get into the definition) were banned outright that would make Ruger and Smith and Wesson even better investment options. Wouldn’t more people want their products?
By the way I am not a member of the NRA nor do Oi work for the two companies. However, I am a gun owner – as is virtually everyone in my neck of the woods.

burntbonez's avatar

If I had no morals, I’d put my life savings in gun stocks right now. Then I’d take them out in a month or so.

Of course, I lost a lot of money in ‘99–00 during the tech boom. If only I would have sold Red Hat Linux at a 95% profit (in a few weeks), instead of holding out for 100%. I ended up selling it having lost 50% of my investment. Maybe more. So I would not take my advice on stocks. Or maybe I would. Maybe I’ve learned something.

KNOWITALL's avatar

Absolutely invest! With Obama’s re-election and the continuing attacks on the Bill of Rights and government screwing up right and left, the Middle East’s continual saga- this will be a long ride.
As I’ve mentioned before, gun people are stockpiling and will be for a long time.

LuckyGuy's avatar

This just seems so obvious to me I figure I must be missing something. RGR ans SWHC certainly can’t be losing money with the increased sales and full up production.
I’ll think about it for another day or two.

CWOTUS's avatar

I think one of the operative (and ancient) stock market aphorisms may apply here:

“Buy on the rumor; sell on the news.”

That is, “the rumor of additional gun control” is temporarily driving a lot of sales (increased production) for firearms manufacturers in this country, as we have seen. That’s probably going to result in some kind of short-term boost to the companies’ profits, which may eventually translate into their stock valuation as well.

The “news” of actual gun control – if anything really does come of the mass hysteria being broadcast – would certainly result in a decrease in sales, whether that’s from increased waiting periods, mandated training and licensing prior to the sale, additional background checks, permits or whatever other obstacles to buying are introduced.

I would have thought that oil stocks in general would have been better performers, by and large, but over the past two years I see that RGR has doubled in value, and the oil stocks, XOM and BP, anyway, have been more or less flat. Hmm. There may be something here.

And it’s not immoral to buy stock, even in companies whose products you may not like or approve of. That’s not directed at you, @LuckyGuy, because I know that you don’t disapprove of Ruger and other quality firearms manufacturers or their products.

KNOWITALL's avatar

I bet right now that many wack jobs are buying, building or ordering now before restrictions are put in place. Again, you can buy guns at Walmart, and you can kill people with a $99 gun.

@CWOTUS As long as Obama is in office gun sales will not decrease. Guaranteed.

Pachy's avatar

Is it the right time to invest? Probably. Is it the right thing to do. No!

CWOTUS's avatar

You’re probably right about that, @KNOWITALL, but knowing how Congress is susceptible to public pressure and because the members like to be seen as “pro-active”, this might be an issue that they get together on and pass some stupid law that does make legal purchases more difficult. That’s why I don’t have absolute faith in your assertion. I’m sure that “demand” will be high while this President is in office, but sales… that’s another story.

KNOWITALL's avatar

Don’t get me started on my conspiracy theory, CWOTUS! :)

LuckyGuy's avatar

How long does it take Congress to do anything? Even if they had 100% agreement and said let’s outlaw them, it would be years before this was implemented. They would likely grandfather in items already made. How long ago did they decide to outlaw 100 watt incandescent light bulbs to save energy?
I think those stocks have a really long time to do well.

LostInParadise's avatar

I could be wrong on this, but my gut feeling is that the political pendulum is finally swinging from extreme right back toward the center. Obama got re-elected despite high unemployment. White supremacists are becoming even more of a minority since white non-Hispanics in general are moving toward minority status. I saw a prediction that Texas, of all places, is heading toward becoming a blue state. The Republicans and, in particular, the Tea Party, lost seats in Congress. They were unable to prevent tax increases on the rich even though they are in control of the House. That slaughter in Connecticut is for many people the last straw as far as gun control is concerned. I would not invest in anything that depends on revenue from right wing extremists.

CWOTUS's avatar

Not necessarily, @LuckyGuy. Think back to Spring 2003 and how easy it was to start a major shooting war. Near-unanimous support for that. This is why when Congress does agree on things, it’s usually the wrong thing, the wrong time, or the wrong law.

LuckyGuy's avatar

@LostInParadise I don’t think the revenue is all from right wing extremists. Those companies are inundated with orders. There aren’t that many right wingers out there.

@CWOTUS I agree that in the long term they might not be the best investment now. But short term they might be.
If their management was smart they would start thinking about converting equipment over to make other products like: advanced medical supplies, or automotive fuel system components, sporting good, arrow, baseball bats, golf clubs, something.
Both of those companies have demonstrated they have the expertise to make precision parts that operate in all kinds of rough environments. They have the metallurgy skills mastered to make metals with fantastic properties. They have the metrology skills to make critically precise measurements. They understand quality control and reliability..
If they start converting over now they can be ready for the next step when the existing order backlog begins to slow down.
They both might become extremely successful businesses.

Gosh I think I might be convincing myself…

ETpro's avatar

@LuckyGuy That seems like sound reasoning to me. So long as it’s one of numerous investments in your portfolio, I’d say go for it.

As to how long to get something through Congress, see this suggestion that the White House might act without Congress. Joe Biden floated this today. Is it just a goad to move Congress, or are Dems spoiling for a Constitutional fight over executive powers that they failed to dispute when Bush used so many signing statements and acted out Cheney’s ideas on the Unitary Executive.

bossob's avatar

Tread with fear when the fever is high;
When fear is high it’s time to buy.

In other words, do the opposite of what the current popular trend appears to be.

It suits my personality as I’m not much of gambler; I don’t have what it takes to play the short term game.

Nullo's avatar

I’d say it’s risky in the long-term, if Congress gets any kind of bill passed. The right time would have been before the election – the 2008 election, since we’re time-travelling.

mattbrowne's avatar

It’s never a good time for unethical investments. It’s never a good idea to just want to make a lot of money.

LuckyGuy's avatar

OK after more thought last night. Assuming their management is not dumb, and knowing their excellent engineering and manufacturing capabilities I convinced myself they were going to change and probably have already started. (I have no proof of this.)

Therefore, in the interest of full disclosure, I must state that I invested a reasonable amount.
Since I now have financial interest in this question I must recuse myself from commenting further.
It will be interesting to see how it goes.

ETpro's avatar

@LuckyGuy Do I need to wish good luck to someone named LuckyGuy? It looks like high capacity clips and perhaps a ban on specific assault weapons will be part of the new regulations. My guess is that would drive more sales TO the sort of manufacturers you planed to invest in, as their products will still be legal and very credible home protection.

LuckyGuy's avatar

@ETpro It was very considerate of the 16 year old nut job in CA to make an attack and temporarily reduce the price of those companies.
Note that he used a shotgun – something that is not even on the table in the gun control discussions.

ETpro's avatar

@LuckyGuy Just about any gun can kill. The debate is about limiting the amount or carnage one nut can inflict with a gun, and doing a better job of keeping all guns out of nuts and ex-cons hands. With a shotgun the maximum shots is 6 before reload. People can jump a shooter while they are reloading. Imagine a shooter in a crowded auditorium with this.

LuckyGuy's avatar

I’m not sure if anyone is still looking at this thread but, SWHC; and RGR are still taking off from a month or two ago. Wow!
The big question, of course is: “When to get out?”

ETpro's avatar

@LuckyGuy Before everyone else starts asking that question. ;-)

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