Wall Street (and America) still love gunsDecember 5, 2013: 1:41 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
For anyone who thought that last year's tragic shooting at Sandy Hook Elementary School in Newtown, Conn., would change America's love affair with guns, think again.
According to a CNN/ORC International poll released Wednesday, support for tougher gun control laws is down from where it was back in January -- just a few weeks after 20 children and six adults were killed by a gunman who then took his own life.
I can't say I'm surprised. If you look at how shares of public companies in the gun business have done since last December, it's clear that firearms are still a lucrative business.
But all the talk about how the Sandy Hook massacre would finally lead to tougher federal and state gun laws have been mostly just that -- talk.
Investor fears over the possibility of more regulation hurting gun companies' sales and profits -- which actually started to perk up after President Obama's re-election -- have pretty much faded away. Just look at how well most of the stocks have done in the past year.
Smith & Wesson shares are up 56% from the 52-week low they hit just days after the Newtown shooting. Cabela's shares have gained more than 60%. Ruger's stock is up 82%. Ammunition makers Olin (OLN) and Alliant Techsystems (ATK) have popped this year as well.
And the rise in most of these stocks make sense when you look at the fundamentals. Smith & Wesson's sales in its most recent quarter were up 26% from a year ago, and the company said it was operating at "maximum production capacity."
Ruger's sales surged 45% in the third quarter. The company announced in September that it had bought a 220,000 square-foot facility in North Carolina to meet increased demand. The new plant, which Ruger said was the company's first major expansion in 25 years, will open in the first quarter of next year.
Currently, gun maker stocks are all down from highs earlier this year. Chris Krueger, an analyst with Lake Street Capital Markets, said that the gun companies will face some difficult comparisons in the next few months, largely because demand spiked dramatically after Newtown as some consumers feared that onerous gun laws were imminent.
That obviously didn't happen. So Krueger is now expecting sales growth to moderate after a period of what he dubbed "unusual and unprecedented" demand. It may already be happening.
Cabela's noted in its most recent earnings report in October that sales of firearms and ammunition are cooling. And the latest data about FBI background checks for guns also point to a slowdown in gun sales.
But that may be only temporary. In fact, Kreuger upgraded Smith & Wesson shares to a "buy" rating on Thursday. He thinks that any calls for stricter gun control rules that pop up around the upcoming one-year anniversary of the Newtown shooting will have little impact on lawmakers.
"Even if another incident like Newtown happened again, gun control regulation wouldn't go far. There would need to be bigger political changes," he said.
And there have been other incidents of mass shootings this year, including one at the Navy Yard in Washington, D.C., where a gunman killed twelve people before he was killed by police.
So don't expect tough gun control laws to ever take hold. The majority of Americans clearly don't want it. The industry's lobbying groups are too powerful. And as long as the companies continue to spit out profits, Wall Street will continue to back the business too. It's the cold-hearted reality.
According to data from FactSet Research, the two largest owners of Smith & Wesson shares -- Vanguard and BlackRock -- increased their stakes in the third quarter.
These two firms are also the third and fourth largest owners of Ruger -- and they boosted their position in that company as well. So did The London Co. of Virginia, and Capital Research and Management -- the first and second largest owners of Ruger.
And then there's Cerberus Capital Management. The investment firm owns a majority stake in privately held Freedom Group, the company that owns Bushmaster -- which manufactures the gun that was used by the Newtown shooter.
Shortly after the Newtown killings, Cerberus said it would immediately sell its stake in Freedom. But it has still yet to do so. Cerberus declined to comment for this column.
It's possible that Cerberus may be having trouble finding a buyer. But based on how well other publicly traded gun makers are doing, that seems a little hard to believe. What's more, Freedom Group, despite being private, does report its quarterly results. Sales in the first nine months of this year were up more than 50% from a year ago.
They say that money talks. So despite the outrage about what happened in Connecticut a year ago, most big investors have continued to support the gun industry. And they probably will keep doing so.
Reader Comments of the Week! The biggest story of the week (or at least Sunday night and Monday) was the revelation from Amazon (AMZN) CEO Jeff Bezos that the company hopes to one day have
drones, ahem, unmanned aerial vehicles, deliver packages.
Unsurprisingly, this led to a series of jokes on Twitter. Here are my two favorites.
Ha! I'd go see that movie. Although the Overstock (OSTK) drone would probably be used more to go after short sellers than delivering packages. And I still think that Amazon should take a page from HBO and launch a new Amazon Prime Instant Video series: Game of Drones.
That might work. But here's a better idea. Wal-Mart (WMT) should develop its own drones to work on Thanksgiving so carbon-based employees can actually spend time with their families!