Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Why Investors in Firearms Stocks Should Vote for Hillary

Investors in gun and ammunition manufacturers and other firearms-related stocks would be well advised to vote for Hillary Clinton. Recent history indicates that the election of a gun-control advocate such as Clinton boosts gun and ammo sales, revenues at firearms-related companies and weapons makers’ share values.

The number of orders that Sturm, Ruger & Co. (NYSE: RGR) received exploded the week after President Obama was elected in 2008, the company’s CEO Mike Fifer told Reuters. The same thing happened again in 2011 when the company got cleaned out of inventory in anticipation of Obama’s reelection. That’s interesting because Obama was not a particularly strong advocate of gun control until after his reelection in 2012.

Investors should take notice because Hillary is a strong advocate of gun control; she’s made it a major issue on the campaign trail. The former first lady was even joined by vocal gun control advocates in late January during the lead-up to the Iowa caucus.


How Clinton Could Help Gun Sales

Clinton supports a variety of gun-control measures, including comprehensive background checks, tougher licensing for gun dealers, and efforts to ban gun ownership by the mentally ill, according to her website. That should interest investors because firearms sales often increase dramatically when gun control is discussed in the media.

Applications for firearms background checks, which are required for weapons purchases, reached the second highest level since 1998 during the week of December 20, 2015, the FBI reported. That development coincided with media speculation that President Obama was planning major action on gun control.

Therefore it serves to reason that the presence of a vocal gun-control advocate such as Hillary in the White House would spur increased gun sales. That would not lead to increased gun control, because Congress and not the president sets firearms policy in the United States, and the Republicans will control at least one house of the next Congress, but it could spur increased gun and ammo sales.

Naturally, investors will want to know if this could lead to greater revenues and higher profits at gun and ammunition manufacturers. The answer to that question, provided by financial numbers, is maybe.


How Gun Control Talk Affects Firearms Manufacturers

Calls for additional gun controls have led to high profits at Sturm, Ruger & Co.—9.9% during the third quarter of 2015—but only slightly higher revenues. Ruger’s revenues for the third quarter were up slightly: $521.3 million on September 30, 2015, as opposed to $498.56 million in June.

Revenues at Ruger are down from the all-time high they reached in March 2014, which was $702.25 million. That number would indicate that the link between elections and firearms sales could be exaggerated. Obviously, the best evidence for this thesis will be when Ruger reports its revenue for the fourth quarter of 2015.

America’s largest ammunition supplier, Vista Outdoor (NYSE: VSTO), whose factories were reportedly running around the clock because of a record demand for ammo, reported a profit margin of 5.93% on September 30, 2015. Despite that, the company only saw its revenues rise slightly.

Vista reported a TTM revenue of $2.058 billion, up slightly from $2.032 billion in June for Fourth Quarter 2015. That was still below December 2014, when the revenue rose to $2.163 billion.

Vista was also benefiting from media hype about an ammunition shortage. News stories indicate that shooters were having a hard time finding some kinds of bullets, mostly 22 caliber rimfire rounds for rifles for reasons that still have not been fully explained.

Gun Control Hysteria May Not Be Driving Up Gun & Ammo Makers’ Revenues

The revenue figures show that gun and ammo companies enjoy a slight bump in revenues because of gun control and elections but not a major one. Instead, the major effect gun control seems to have on firearms and ammo makers is in stock value.


Vista was trading at $47.11 a share at the close of business on February 5, 2016, in a down market. The company’s stock was trading at $38.17 a share on February 5, 2015, in a bull market. Ruger was trading at $61.96 a share on February 5, 2016; a year earlier it was trading at $41.83 a share.

The figures show us that gun-control talk is good for some companies’ share prices but not necessarily for firearms company revenues. Instead, it looks as if investors are betting that Hillary Clinton will win both the Democratic primary and the presidential election.

One has to wonder if U.S. Senator Bernie Sanders’ (I-Vermont) recent success against Hillary in the primaries will have an effect on these stocks. Unlike Clinton, Sanders has been willing to compromise on gun control in the past and has rarely raised the issue on the campaign trail. A Black Swan event that could help these stocks further would be the entry of the nation’s most prominent gun-control booster, former New York mayor Michael Bloomberg, into the presidential race as an independent. Media speculation about a Bloomberg run has been swirling for months.

Hillary might not have any impact on gun sales, but her campaign is certainly good for some companies’ stocks. Only time and earnings reports will tell if the firearms industry is really making more money because of gun control.