Buying Gun Maker Stocks Against the Grain (SWHC) (RGR)

December 18, 2012 3:09 PM EST
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Shares of Smith & Wesson (Nasdaq: SWHC) are down 22 percent from Friday's high and Sturm, Ruger & Co. Inc. (NYSE: RGR) is down 15 percent since that time on fears that the backlash from the Newtown, Connecticut school killings will prompt tougher gun laws.

In what may be counter-intuitive, sales of guns following the tragic event are actually surging as gun enthusiasts and speculators snap-up all types of guns, including the modern sporting rifle-type used by gunman Adam Lanza.

As The Guardian reported Tuesday:
From Oregon to Connecticut, gun shops reported soaring sales over the weekend as national attention returns to gun control

While talk of tougher regulation will dominate headlines, the truth is the right to bare arms is guaranteed by the U.S. Constitution, so guns are here to stay. That said, politicians may be successful in placing tougher restriction on certain type of firearms like modern sporting rifles. Still gunmakers are likely not sweating, but instead counting the profits. They know that uncertainty is one of the biggest drivers of gun-buyers. And uncertainty may be at an all-time high.

Over the near-term, Smith & Wesson and Sturm, Ruger & Co. Inc. could bottom and short covering could lift them higher.

Shares of RGR are down 8.1% Tuesday to $40.43 and SWHC is down 10.5% to $7.75.

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