Smith and Wesson Holding Corp (SWHC), Sturm, Ruger & Co. Inc. (RGR): A Bang for Your Buck?

Page 1 of 2

Investors who follow gun manufacturers such as Smith and Wesson Holding Corp (NASDAQ: SWHC) and Sturm, Ruger & Co. Inc. (NYSE:RGR) may think that December’s double-digit percentage decline was an exaggerated reaction to the announced effort on stricter gun control.

Smith & Wesson Holding Corporation (NASDAQ:SWHC)

2013′s rally in these stocks hints that investors may not be as concerned now that more is understood about the proposed gun legislation.  On January 18th, The Motley Fool published the article, “Poll Shows Americans Want Stronger Gun Laws… Sort Of.” One of the main points in that article was that most Americans polled were not in support of an assault weapon ban or a high-capacity magazine ban for firearms, although there is a general consensus that background checks in relation to private party sales should be enforced at gun events. Here’s what we had to say about this situation after the November Presidential Election.

With that said, legislation for assault weapon restriction could still move in either direction.  This article questions if this legislation is really holding a proverbial gun to long-term investors’ heads, and we can look at what some hedge funds doing with their Smith and Wesson and Sturm, Ruger & Co. holdings to get an idea of what bigger players in the market are doing.

Jim Simons’ hedge fund, Renaissance Technologies, has upped its stake in Smith and Wesson by 55% compared to the previous quarter. Simons reduced his Sturm, Ruger & Co. position by about 18%. This is likely just some profit taking on recent highs, however (see Simons’ entire 13F portfolio here). Route One Investment Company, meanwhile, is another major hedge fund that currently keeps 2.2% of its total funds in Smith and Wesson along with 1.34% in Sturm, Ruger and Co (see Route One’s other stock picks). That’s a strong vote of confidence from two well-managed hedge funds.

Let’s get back to the crux of the situation. The estimated market cap for domestic non-military modern sporting rifles, the targeted style of gun in new legislation, represents approximately 18.7% of the total firearm market, and about 18.2% of Smith and Wesson’s net sales.  Rifles in general (modern sporting rifles and hunting rifles weren’t distinguished in Sturm, Ruger & Co’s 2011 financial statements) accounted for about 25% of total sales. It wouldn’t be fair to say that all of this revenue would disappear for each company if a ban on assault rifles were implemented, though.  Some of Smith and Wesson’s revenues come from military and law enforcement sales, and the same can be said for Sturm, Ruger & Co.

Smith and Wesson’s 2010 10-K states: “During the surge in consumer demand after the 2008 presidential election, modern sporting rifles represented the fastest growing segment of the long-gun market.”

Investors can’t be led to seriously believe that the big players investing in gun producers didn’t see the immanency of an assault rifle ban coming, can they?

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

The 20 Biggest Contracts in MLB History

The 7 Worst Blown Calls in Sports History

7 Free Ways to Advertise Your Business Online

The 18 Best R&B Songs of the 90’s

The 10 Most Dangerous States to be a Cop

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!