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Wednesday, June 20, 2012

Gun Stock: Putting Money Where the Mouth Is

We bloviated about three weeks ago on the merits of investing in gun stocks with a particular emphasis on Ruger (RGR), with Smith and Wesson (SWHC) being another suitable alternative. Shortly after that article the price of RGR continued to drop while the main stock indexes including Dow Jones Industrial and NASDAQ were fairly flat if not most days. SWHC also didn't have a noticeable drop. 


This raised some doubts on the viability of Ruger as being a great investment for the moment, while at the same time it was just getting cheaper than the $37.63 at the close of the day when the first article was written. So, I figured a limited order of $36.50 would be interesting to get involved and see if investing in guns could really pay off. The target price was sit as you can see from the transaction above and a BUY was made. The stock continued to go down. You can't always hit a stock right at the bottom of a fall, but you hope you are close. 

I have been meaning to right a follow up just to show some interesting factors to investing in RGR and today seemed like a better day than others as the stock price is finally back up ($37.03) above the price it was first purchased. It as been a roller coaster over the past 3 weeks with the price going just below $35 for a recent low. All the while analysts have been calling RGR oversold or a good buy. 

SeekingAlpha.com referred to the Ruger stock as a Beaten Up Beauty and had this to say about the current affairs, "Sturm Ruger (RGRwas trading at $58 the last week of April 2012, the stock is currently trading at $35.15. Last week they resumed manufacturing of guns, why you ask, because their suppliers could not meet the 50% increase in demand thus far this year. Their backlog is significantly above last years as well. Their earnings in May were up 88% as people are starting to lock and load....". 


Above is a graph showing Ruger (RGR), Dow Jones Industrial, NAZDAQ, and Smith and Wesson. While Ruger generally has a Beta close to 1 and stays close to the overall market movement, it did have a huge jump above market trends, so a huge sale off from capturing profits could be expected, especially with Mutual Funds and Financial Institutions, whom hold the largest stake in the company.  This leave some opportunity for individual investors to get in on a new trough (recent low). 

While we don't expect anyone to take this as investment advice nor should you, however it will be fun to see where this ride goes and could lead to the some extra spending money for ammo or some of Ruger's finished product. Then again the stock price could plummet by the time this is read and be quite laughable. When investing you are buying into a company with a share of ownership in return, no matter how infinitesimal it may be. 

There are many factors to consider for the gun industry at this point in time, but things are looking up for the opportunity of new ownership and Ruger has some wild cards they like to pull out from time to time that boost growth by capturing a bigger share of the firearms market and keep things interesting.  They are also one of the few (two) gun manufacturers allowing direct investment from small investors, which carries over the interest even further. 

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