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After mass shootings, some on Wall Street see gold in gun shares

 
Brandon Wexler of K&W Gunworks in Delray Beach shows a customer one of the weapons she was picking up at the end of the three-day waiting period on Tuesday, when President Barack Obama announced his executive action on guns.
Brandon Wexler of K&W Gunworks in Delray Beach shows a customer one of the weapons she was picking up at the end of the three-day waiting period on Tuesday, when President Barack Obama announced his executive action on guns.
Published Jan. 9, 2016

In the days after the Paris terrorist attacks in November, world leaders denounced the shooting massacres. On Wall Street, money manager Louis Navellier saw an opportunity.

Shares of the two leading gun manufacturers, Smith & Wesson and Sturm, Ruger & Co., popped onto Navellier's computer screen. Their stock prices were rising as a result of strong sales. He began accumulating positions in both companies.

Two months later, those bets have paid off. The stocks of Smith & Wesson and Sturm, Ruger spiked again after the San Bernardino, Calif., shootings last month. They also moved sharply in advance of President Barack Obama's announcement Tuesday of measures to curb gun violence.

On Tuesday morning, Navellier appeared on the business television network CNBC and discussed his winning investment in gunmakers.

"Mr. Obama is the best gun salesman on the planet," said Navellier, chairman of the Reno, Nev., investment firm Navellier & Associates, alluding to the notion that the White House's push for stricter gun laws has driven sharp increases in firearm sales.

While the country reels from a series of mass shootings, each one reigniting the debate over the regulation of firearms, the hottest investments in the stock market seem to be shares of gun manufacturers.

Since Obama took office in 2009, shares of Smith & Wesson and Sturm, Ruger have each increased more than 900 percent, far surpassing the return of the Standard & Poor's 500 index (up 147 percent) and even outperforming Apple (up 800 percent).

But some investors have missed out on the rally in gun stocks by choice. A number of public pension funds and other money managers have moved to sell stakes in gun and ammunition companies in recent years, arguing that profits come at too steep a price.

Still, the business climate for gunmakers has rarely been better. Firearms enthusiasts, whether they are hunters, target shooters or just people concerned with their personal safety, buy more guns after mass shootings and the resulting appeals for stricter gun laws. After the call for sales restrictions after the San Bernardino attacks, more guns were sold in December than almost any other month in nearly two decades, according to federal data released this week.

But even surging sales are not enough to attract those investors that consider the shares of gun manufacturers to be taboo. After the 2012 shootings at Sandy Hook Elementary School in Newtown, Conn., several public pension funds began moving to sell off their financial stakes in gun and ammunition manufacturers.

While several of the country's large public pensions sold off shares in gunmakers, other investment firms flowed in. The London Co., a money manager in Richmond, Va., with $11.2 billion in assets under management, began buying stock in Sturm, Ruger in 2008. In 2013, it doubled its stake. Today, it is the largest shareholder, owning 2.4 million shares, or about 12.7 percent of the company.

For Navellier, there was nothing personal driving his decision to invest in Smith & Wesson and Sturm, Ruger. Instead, the decision to buy the gun shares had everything to do with profits.

"Everybody is so desperate for earnings. The strong dollar is crushing company earnings," Navellier said. "As a professional manager, I'm looking for companies with real sales and real earnings."

Navellier said he had a small number of investors that put restrictions on the types of companies in which he can invest. Some West Coast investors, for instance, do not want the firm to invest in companies involved with genetically modified crops. For some investors on the East Coast, it would not be appropriate to invest in a company with a nonunion workforce, he said.

"But nobody," Navellier said, "has told me not to buy guns."