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Total recoil: Gun stocks plunge

December 7, 2012: 1:25 PM ET
Gun sales are up but gun stocks may cool off following a huge run this year.

Gun sales are up but gun stocks may cool off following a huge run this year.

Is the post-election rally in gun stocks over? Smith & Wesson (SWHC) reported pretty solid earnings after the closing bell Thursday. It also announced a share buyback program and raised its guidance.

But shares of Smith & Wesson fell 8% Friday afternoon on heavy volume. Rival Sturm, Ruger (RGR) dropped more than 3% as well.

The sell-off on good news is a bit surprising. But investors do have to keep in mind that both stocks have enjoyed huge run-ups in the past month and for the whole year.


Part of the spike can be attributed to President Obama's re-election. Some gun owners (and apparently investors) believe that Obama's victory could mean that he'll push for stricter gun control laws in his second term. So there could be a rush on sales in the next few months.

But traders on StockTwits were debating whether that's really the case or if the gun makers have seen their best days.

$SWHC Profit taking, patience for lower price to get in

$SWHC operating income $26.6 mil vs $3.4 mil same time last year, $20 mil share buy back, down 4%.... awesome.

There's no denying that the company reported good results. But gun stocks had a lot of momentum heading into the report. One could argue that investors were expecting more from Smith & Wesson.

Obama fear unjustified just like last election RT @StockTwits$SWHC has erased all of its earnings (cont)

I thought you might see a sale of the news in $SWHC given the trends in backlog and inventory. Remember the useful life of a gun is forever.

Both great points. Gun stocks did surge following Obama's election in 2008. But gun control was not a major issue in his first term. Health care reform and the economy in general obviously took precedence.

And the inventory trends noted by PAAResearch could be a bad sign for the future. The company's order backlog declined from a quarter earlier. That may mean that consumers are not feeling a need to rush out and buy guns after all and that the worries about a government crackdown are overblown.

$SWHC - If the jobs report is good (which I doubt) this may get some short term sell off. People don't hoard guns in a good economy.

That tweet was before the jobs numbers were released. The numbers weren't great. But they were better than expected given concerns about Sandy distorting the data and general fiscal cliff  unease.

So if you thought that the economy was heading for another significant recession and that bunker mentality stocks like gun makers and Campbell Soup (CPB) were going to be fantastic investments, the November jobs report may uh, shoot holes in that theory.

Time for the Reader Comment of the Week. A certain tech company has a monopoly ... on the financial media's attention. The continued slide in Apple's (AAPL) stock this week was a major story. But one Twitter follower noted that it might be a bit much ... and he wins RCOTW mainly for appealing to my Italian-American pride.

Indeed. There are other stocks out there. But I suspect we will all continue to be crazy (or mad) about Apple throughout 2013!

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Paul Lamonica
Paul R. La Monica
Assistant Managing Editor, CNNMoney

Paul R. La Monica is an assistant managing editor at CNNMoney. He is the author of the site's daily column, The Buzz, and also tweets throughout the day about the markets and economy @LaMonicaBuzz. La Monica also oversees the site's economic, markets and technology coverage.

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