Want To Make A Million In The Gun Business? Start With Two Million.

If you decided to invest in the stock market on June 15, the Dow that day stood at 21,359. The day after Thanksgiving it closed at 23,557. In other words, just about any stock you would have bought in June was probably up at least 10% over the following five months. Unless you made the mistake of buying Smith & Wesson stock, which was selling for $24 on June 15 and closed on November 24 at $13 a share. You would have done a little better with Sturm, Ruger, which was at $68 a share in mid-June and ended last week at $50, a nosedive of ‘only’ 25 percent.
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Talk about a Black Friday! The old joke used to be that if you wanted to make a million in the gun business, start with two million. That old joke seems to be coming true in spades! But if that’s the case, and I thank our good buddy Shaun Dakin for pointing this out, how come the FBI-NICS background check system set a new, single-day record for the number of received calls? They claim they were ‘flooded’ with 203,086 calls on Friday, which broke the single-day record of calls – 185,713 – set on Black Friday in 2016.
Before all my friends in the gun violence prevention (GVP) community start lamenting that America is once again becoming awash with guns, let’s remember that on average, more than 40% of the calls received by NICS are for license verifications, private sales and other issues which have nothing to do with the over-the-counter movement of guns. And when the FBI publishes their total monthly stats for November, I’ll take the short odds that retail gun sales will continue to show the same 15% slide that has been going on all year.
Want to see a really great investment opportunity in guns? Add some corporate debt bonds issued by Remington Arms, which has dropped from $65 to $14 over the last six weeks. And it appears that this trend will not only continue but may get worse, with Remington broadly hinting that a default on their debt may not be far behind. And the reason why their bonds are turning into junk is the same reason that prices for Ruger and S&W stock continue to fall, namely, that nobody’s buying their guns.
Incidentally, Remington happens to be the ‘flagship’ company for an outfit known as the Freedom Group, which was the brainchild of an amateur gun nut named Steve Feinberg who cobbled Remington together with Bushmaster, DPMS, Marlin and a couple of smaller companies to create what was described as the leading “innovator, designer, manufacturer and marketer of guns and ammunition” anywhere, anytime, anyplace. I’m quoting from the press release for what was supposed to be a big $200 million IPO in 2010. Now they can’t pay off their $275 million debt. Oh well, oh well.
I don’t follow the ins and outs of the stock market but I do know something about the price of guns. Right now I can buy a Smith & Wesson Shield pistol from Bud’s Gun Shop for $299. I can buy the same gun from the Grab-A-Gun website for $279. I’ll have to pay my local dealer a few bucks to do the transfer, but a year ago that gun was selling for $379. I can pick up a Ruger AR-15 for under 600 bucks; that man-killer used to sell for $899 or more.
In my lifetime I remember when every, single American kitchen had a Mixmaster next to the stove. I also remember when I first put my hands on the keyboard of an electric typewriter made by IBM. If the stock prices of S&W and Ruger continue to slide, those company names will wind up like Studebaker, Philco and Trump Air. Remember something called a pay phone?

 

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Is Investing In Gun Companies A Safe Bet? I Don’t Think So But Some Might Disagree.

I love when The New York Times, the so-called newspaper of record, publishes an interview with a quick-buck artist who bought shares of Smith & Wesson after the massacre at Sandy Hook and tells us that “some” Wall Street investors see gun companies as a good buy. Meanwhile, if you bother to read Julie Creswell’s entire article, you quickly learn that the real Wall Street money – institutional funds – are staying as far away from gun investments as they can.  And the reason for this is very simple, namely, that putting money into a publicly-owned gun company represents an investment in an enterprise whose value has little or nothing to do with the health and business prospects of the enterprise at all.

nyt logo              I recall that in September, 2012, there wasn’t a Republican who didn’t believe that all the polls showing Obama beating Romney had to be wrong.  After all, how could a President get re-elected with an unemployment rate that was holding at 8%? It’s the economy, stupid.  Remember that?  Meanwhile when voters went to the polls in 1992, the unemployment rate was 7%, so no way Obama was going to go back to the White House again. And there wasn’t a retail dealer in the country, including myself, who could figure out what to do with all the inventory that was sitting on our shelves, because we knew that if Romney got elected, gun sales would collapse.

Well Romney didn’t get elected and several weeks later we had the awful shooting at Sandy Hook.  And the result of that massacre was a spike in gun sales, and another spike when Obama started pushing a gun-control bill, and now another spike because Obama’s promoting his own gun-control initiatives regardless of whether Congress wants to go along or not.  Even the NRA, which has been peddling a paranoid vision of Obama doing something drastic in his lame-duck term, admitted that the proposals were fairly mild and didn’t add up to all that much.

But let’s go back to the NYT article and focus on the data used by Julie Creswell to drive her argument home.  The article contains a graphic showing how the stock prices of Smith & Wesson and Ruger have climbed over the last several years. Note that the S&W share price was around $16 in mid-2014 and then fell like a rock to under $10 at the beginning of 2015.  During roughly the same period, Ruger stock dropped from $75 a share to $35.  Both stocks began climbing again in the 2nd quarter of last year, but the price that is now attracting traders like Louis Navellier isn’t s reflection of the gun industry’s long-term health, it’s a classic bubble which, like all bubbles, will soon burst and the stock will die.

Why do I say that?  Because the collapse of those stock prices back in 2014 was the result of the gun industry discovering that even after Sandy Hook and Aurora, the ability of the gun market to absorb new inventory could only go so far.  It took gun makers a year to ramp up production once it began to look like a gun-control effort would succeed, but by the time all that additional product got through wholesale distribution and onto retail shelves, the mad rush into gun shops had slowed down.

The gun industry can talk all it wants about how fears of terrorist and/or criminal violence are creating a new customer base.  They can have Colion Noir pitching to the inner-city market and Dana Loesch speaking on behalf of ‘America’s Moms,’ but it just doesn’t work.  The only folks who remain convinced that you can protect yourself from gun violence by responding with gun violence are the folks who keep buying guns whenever they believe they won’t be able to buy guns.  The truth is that investors who put their money into gun companies aren’t really investing in the gun industry, they’re investing in fears that the industry won’t survive another Sandy Hook.  Maybe it won’t.