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abitare (99.38)

When to Sell the Gun Maker Stocks?

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July 16, 2012 – Comments (9) | RELATED TICKERS: SWHC , RGR , OLN

Disclosure: I am long SWHC, with 100% of my portfolio, I hold no other stock postions besides gun makers since Feb 2009. I posted my position in a blog post on: 17 Feb 2009: Long Smith & Wesson Holding (SWHC). Top Ten Story: Guns and the Constitution: A legislator finally gets it Follow  Report -

 

Since my recommendation of the gunmakers in Feb 2009

1. OLN is up 46%

2. RGR was up 750% now is  550%

3. SWHC is  247%

So when to sell? When they pry the gun stocks from your cold dead hand!

Actually, let review when to sell - from April 16, 2009,

Fool Knows: The Gun Craze is Just Getting Started (Part 2). Guns: A Better Buy Than Stocks

Lets review my 25 March 09 post. CHANGES IN BOLD

I know Fools that followed me into this trade are wondering when to get out of it. SWHC is up over 110% since I posted on it 17 Feb 09.

I took out some of my leveraged, but I am not getting out of this trade based on a price, but more on a time line or specific events I expect to see in the coming months. 

My WAG is the gun craze is just getting started, in 6-12 months it will get nuts, IMHO

Some things I am looking for:

1. You will see people camping outside of sporting good stores waiting for ammo shipments

We are close to that here:

60 Minutes:

The Way Of The Gun

Americans are buying guns and ammunition at a startling rate despite the economic downturn. As Lesley Stahl reports, the economy, as well as the election of Barack Obama may be the reason for the run on guns.

April 12, 2009 5:03 PM

 2. Jim Crammer will do a show on guns

60 Minutes will do?

The Way Of The Gun

WSJ 16 APR 09

Fear and Greed Have Sales of Guns and Ammo Shooting Up

http://online.wsj.com/article/SB123984046627223159.html#m......

FAYETTEVILLE, Ga. -- The way Jay Chambers sees it, the semiautomatic weapons in his firearm collection might be the most promising investment in his financial portfolio.

AK-47

Like many gun enthusiasts, Mr. Chambers, a manager for a door wholesaler here, believes President Barack Obama and the Democrats in Congress soon will reimpose a version of an expired federal ban on the sale of so-called assault weapons. If such a law passes, he figures his collection -- enough guns, ammo magazines and weapon parts to assemble about 30 AK-47s, AR-15s and other semiautomatic rifles -- could triple in value.

"A guy could easily make a lot of money," says Mr. Chambers, 47 years old, while at Autrey's Armory, a gun store a

12 Apr 09

3. A new IPOs on ammo makers are created

Matter of Time

4. Families will put down their PS3, XBOX 360s etc... and will be going to the gun range

Yep, it is happening big time. Call you local shop for a class and ask.

5. There will be more sporting events and shows about guns coming to a theater near you

It is happening and is gaining momentum

6. Factories will re-tool to produce ammo and guns

Matter of time

7. Tariffs will block out foreign weapons imports. 

Again for you Fools, that do not buy into this story, just wait, you will see.

You are seeing it and you will see it more. 

Since my post 17 Feb 09 look at the media.

Mineyville follows:

Guns: A Better Buy Than Stocks

Andrew Jeffery  Apr 16, 2009 1:10 pm

WSJ catches on: Fear and Greed Have Sales of Guns and Ammo Shooting Up

 APRIL 16, 2009

http://online.wsj.com/article/SB123984046627223159.html#m......

Reuters is telling us what Fool already knows:

In American crisis, anger and guns:Bernd Debusmann

By Bernd Debusmann

WASHINGTON, March 19 (Reuters) - In the first two months of this year, around 2.5 million Americans bought guns, a 26% percent increase over the same period in 2008. It was great news for gun makers and a sign of a dark mood in the country. Gun sales shot up almost immediately after Barack Obama won the U.S. presidential elections on November 4 and firearm enthusiasts rushed to stores, fearing he would tighten gun controls despite campaign pledges to the contrary. After the November spike, gun dealers say, a second motive has helped drive sales: fear of social unrest as the ailing economy pushes the newly destitute deeper into misery.

http://www.alertnet.org/thenews/newsdesk/N18371036.htm 

My posts on Guns here:

The Solution. What is more rare, harder to find then gold......

March 22, 2009

Violence Until Debt Jubilee and Jim Rogers (03 Mar 09)

March 06, 2009

Net Long the US Market! (Ultra-shorts and Guns and Ammo)

March 05, 2009

Obama Promises To Stop America's Sh-tty Jobs From Going O......

Detroit: Homicide Down, No One Left to Kill

March 03, 2009

Barron's writes what Fooldom Knows, the Consumer is Buyin......

March 01, 2009

When in Africa do as the Africans. Long SWHC and RGR

February 25, 2009

Long Smith & Wesson Holding (SWHC). Top Ten Story: Guns and the Constitution: A legislator finally gets it

February 17, 2009

WARNING: The government may end this trade with legislation on a whim or by taxation. 

 

9 Comments – Post Your Own

#1) On July 17, 2012 at 12:06 PM, amassafortune (30.01) wrote:

Credit most of the Ruger turn-around to CEO Mike Fifer who put his 5-yr plan in place soon after arriving in 2006. He immediately began selling company hunting retreats and its money-losing foundry to concentrate on its core competencies. His plan was excellent, he implemented it well, and its intended results are hitting the bottom line.

In an industry with very loyal customers who are willing to wait months for a hot new product, he insisted the company move toward modern manufacturing and distribution methods to squeeze waste out of the entire supply chain. Other gun manufacturers were content to continue build large runs out of season and forcing the product into the supply channel. This allowed some penetration by the likes of Taurus (US-based, but mfg in Brazil).

By building smaller lots to customer demand, Ruger regained the American advantage. Only a couple competitors like Austria's Glock had very high system-wide (mfg-to-retail sale) inventory turns due to demand before Ruger led the manufacturing change.

Ruger was also early to the trend toward personal protection, especially concealed carry with it's .38LCP (lightweight, compact, pistol) LCR revolver, and LC9 9mm.

A/R-style guns have been a big hit. Some non-gunners see these models as nasty-looking symbols of evil, but they have been making inroads into hunting for the same reasons their style makes sense for the military. They are still basically a lock, stock, and barrel like any other rifle.

In fact, modern versions of the Browning 1911 and Springfield rifles of WWII shoot only a little more accurately than they did 100 years ago, and some of that accuracy has to be credited to the more precisely machined bullets and cartridges of today.

As investments, understand that much of Ruger's fantastic results have been realized because it adopted methods used by Toyota, Emerson, and other worldwide manufacturing leaders. I expect their rate of earnings growth to moderate.

Yes, if we have some societal meltdown events as abitare suggests, gun demand can still grow. Many sales, especially in AR and AK-style models has been speculative and, although a member of the NRA, I'm not proud of the shameless way they use fear to raise funds.

The average guns owned per gun-owning household was 4.4 in 2005. We often hear of a "cache of guns" on the news, but guns are like tools - one does not perform all duties. If you need a chainsaw for a fallen tree, that table saw in your workshop is useless. It's the same with guns.

S&W is being run by a better management group today, but SWHC has already seen a 300% rise. They probably have more to run, but S&W has always had modern CNC machines and did not have the cash-burning foundry that Ruger jettisoned early.

Two gun companies I love that are not public are Hornady, the ammo innovation leader of today, and PA-based Keystone Sporting Arms (Crickett and Chipmonk), with their very popular "My First" program where youngsters can learn manufacturing techniques while they build their own first gun. 

I don't think we will see the desperate gun run Abitare suggests, but there has been a 10-year growth trend for suburban gun ranges. Target shooting, sporting clays, and other popular shooting sports can continue to grow, even for people who would never carry a weapon or hunt. These events have even replaced other corporate team-building and golfing outings in some areas. At the very least, it is not a bad idea for most Americans to learn the difference betwee a rifle and shotgun, or pistol and revolver.

And for heaven's sake, as prevalent as guns are in the news, every media person should learn a lot more about the subject. I wish I could link it, but there was an NPR reporter who went to do a "gun nut" story with existing bias and ended up with a new hobby about fifteen years ago.

 

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#2) On July 17, 2012 at 12:50 PM, anchak (99.83) wrote:

Couple of things - lets get this straight - you mean to say - that in Feb 2009 - you invested 100% of your portfolio in Smith & Wesson?

What about your CAPS positions and posting - that Mar 5 ,2009 - which said Ultra-Shorts and Guns & Ammo  - 1 day before the market bottom?

Also that thought about SWHC being UP so much since your Feb 2009  recommendation is a little disingenuous - isn't it?

This is how SHWC,RGR and QQQ compare in their stock behavior - this is NOT performance - just to show correlation and behavior against markets ...... since 2009

http://www.flickr.com/photos/34661561@N03/7591231642/in/photostream/lightbox/

 

So looks like he day to buy SWHC was Oct 4,2011 because as per the ticker - SWHC - price was slightly lower than the Feb 2009 - but of course a little higher than the Mid-Nov 2008 bottom.

RGR - held up much better 

 

BTW : QQQ went up from 20+ to 66+ also during this time frame

 

http://www.flickr.com/photos/34661561@N03/7591245438/in/photostream/lightbox/

 

This is to show - that really the date to have sold SWHC was Oct 2007 -  so really are Gun makers - negatively correlated to the market ?

To me it doesn't look so - but maybe I am misguided

 

 

 

 

 

 

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#3) On July 17, 2012 at 2:49 PM, Schmacko (93.87) wrote:

I don't get it.  Why does a stock's behavior (whatever that is) matter vs. performance.

Since the start of Jan 09 SWHC is up over 300%, RGR is up over 600% (Hitting 900% before its recent drop), QQQ is just over 100%, and the S&P is something like 45%.

I look at your charts and they seem to imply QQQ is better?  I seriously don't get it.

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#4) On July 17, 2012 at 4:06 PM, anchak (99.83) wrote:

The premise abit - I believe he had at that time - which I recall very well - was - that Ammo industries - should thrive well in that environment - where everyone thought - stocks were going to hell - so I am guessing if you bought that - you think this industry is Uncorrelated with the larger market - is it?

SWHC - kept going down and down after the initial pop - so much so - you could have bought it for CHEAPER - in Oct 2011. There aren't many stocks to have retested the 2009 Feb-Mar levels.

 

RGR - didn't do it - but clearly the industry is very much swayed by the general market.

 

Individual stocks should beat the index - especially SPY - because they carry much higher betas - in a bull market.

 

But QQQ - I see 25.71 to 68.55 (May 2012 high) .....and that's for an index -lower volatility - without concentrating on a single stock

 

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#5) On July 17, 2012 at 4:09 PM, anchak (99.83) wrote:

In a net sense - the answer to the question should be - "When you feel the market has topped"

Holding Ammo stocks - will not necessarily - shield you from a market meltdown - as it didn't for either SWHC and RGR in Oct 2007

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#6) On July 17, 2012 at 10:21 PM, awallejr (80.13) wrote:

To talk today about picks you made in March 2009 is nice I suppose since from a historical perspective that would have been the time to throw every cent you owned into the market.  It had little to do with your "thesis" in doing so.  Those companies came along with the ride these last 4 years with many other stocks.

Sheesh pretty much any (aside from banks and builders) have kicked butt, even with give backs.  ACAS you could have bought for 70 cents and received a 1.40 dividend that year, which now sells for near $10.  That's a hell of a return for new money that bought it then.  Sucked for those who bought it a year earlier for more than twice current price.

I don't wish your holdings any "ill" but so far civilization hasn't collapsed as you and many others were predicting back then.

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#7) On July 17, 2012 at 11:02 PM, NOTvuffett (< 20) wrote:

this is an interesting thread to me, just because i have had designs for pistols and designs for submachine guns bouncing around in my head since i was in second grade.  i never really considered investing in them.

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#8) On July 18, 2012 at 9:49 AM, GNUBEE (24.85) wrote:

Noticing all your sources are no more recent than 2009.

Anything new to validate your thesis of the "arming of the people"?

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#9) On July 18, 2012 at 10:39 AM, leohaas (91.57) wrote:

First of all: congrats on your excellent call. Not too many of us have all our chips in one basket. And even fewer can boast a 247% return in 3-1/2 years. Gutsy...

To answer the question in your title: when the fear of the part of the US population that our government is trying to ban all guns subsides. In other words: never.

Since District of Columbia v. Heller and McDonald v. Chicago there can be no doubt about how our courts interpret the Second Amendment: it is an individual right to possess a firearm for lawful purposes that is incorporated. In spite of these two groundbreaking Supreme Court decisions which should have allayed any fear that our government can take our guns away, gun and ammo purchases have continued to soar.

Bottom line: the paranoia that is driving gun and ammo sales is still very much alive. Clearly, gun and ammo maker stocks stand to benefit.

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