Gun Stocks Trade Lower Following Connecticut Shooting
Shares of gun manufacturers traded lower on Monday following the Sandy Hook Elementary School shooting in Connecticut.
Smith & Wesson (NASDAQ: SWHC) traded down over three percent, while Sturm, Ruger (NYSE: RGR) dropped about two percent. Other related stocks, like Cabela's (NYSE: CAB) traded lower as well. Cabela's sells a variety of hunting gear and fire arms; its shares were down nearly five percent.
Over the weekend, various politicians called for a renewed focus on gun control. President Obama even made reference to it, but he was not specific in proposing any sweeping changes.
Senator Dianne Feinstein pledged to reintroduce the assault weapons ban on the first day of the new congress. The previous ban, enacted in 1994, expired eight years ago.
There's also the possibility of new regulations on the sale and licensing of firearms. With a renewed focus gun control, traders may be projecting that the financial results of these companies will suffer.
Yet, is that a valid assumption?
Since the financial crisis of 2008, gun sales have skyrocketed. As sales have increased, shares of the gun manufacturers have likewise benefited. Over the last five years, Strum, Ruger has gained more than 400 percent.
Arguably, much of the increased sales may have been generated out of a fear -- a perception that a Democratic president would attempt to crack down on or restrict gun sales. Thus far, through four years of Obama presidency, that has failed to materialize.
Now, with Feinstein and others actively pledging legislation, those fears may be realized. Somewhat ironically then, moves to limit the sale of the guns in the future may lead to a rush to purchase guns in the present.
Of course, these stocks are widely hated. Almost half of Ruger's outstanding shares are sold short. Consequently, any positive news could prompt a powerful short-covering rally.
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