Buy Gun Stocks When a Democrat is in Office

Erin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Within the firearms industry there is a quiet adage that defies the logic of politics. “Guns sell better when a Democrat is in office.”

It is a well-known fact that Republicans support the firearms industry, while Democrats legislate and limit it. So why would firearms sell better under a Democrat (if the adage is true)? The theory is that when Democrats hold the power, gun owners are scared for their Second Amendment Rights, and go out and buy more firearms, worried that Big Brother is about to take them all away. When Republicans hold more power, no one worries too much. In short, if you are a gun owner you may wish to see a Republican get elected President. But if you are a gun stock owner, you may want to re-elect Obama.

Armed with that knowledge, we put the theory to the test. There are hundreds of firearms manufacturers around the world, ranging in size from gunsmiths working in their wood sheds to the better known brands such as Smith and Wesson (NASDAQ: SWHC), Glock, and Beretta. But the list of publicly-traded firearms manufacturers shrinks significantly to Smith and Wesson, Sturm Ruger (NYSE: RGR), and Alliant Tech Systems (NYSE: ATK)

<img src="/media/images/user_920/firearms-gross-sales_large.JPG" />

Each year, since a Democrat was elected president, overall, firearms sales have increased across the board. And that is in spite of a bad economy, where normally it would stand to reason that an expensive, (some would say) non-commodity, product's sales would drop off. Again, this proves the theory that firearms sell well because a Democrat is in office.

Beyond the sales numbers of just these publicly traded companies, there is another way to gauge how well the firearms industry is faring. Sales can also be tracked by the number of background checks and inquires by firearms dealers to the National Instant Criminal Background Check System (NICS). In December 2011, the FBI reported a record 1,534,414 inquiries were requested before Christmas alone.

Two days before Christmas, NICS ran 102,222 background checks, which was the second-busiest day in history. The one-day record was set a few weeks earlier on retail "Black Friday," with 129,166 searches. In comparison, the previous one-day high was also set on a "Black Friday,” November 28, 2008, (slightly less than 98,000 requests) the first major shopping day (and exactly 24 days) after President Obama was elected. Coincidence? Probably not. While President Obama has been in office, the number of inquiries has continued to rise. In December 2009 there were 1,031,344 inquires, which rose 9.9% in December 2010 to 1,133,371.**

When the industry sees sales spikes such as these, experts come in from the range with various theories. “More women are involved in shooting sports now," is always a popular one. Caroline Brewer, director of communications at the Brady Campaign to Prevent Gun Violence, called the Black Friday surge a "one-time event." She said any increase in gun purchases "may be the result of marketing." But real industry insiders know the truth- first, that firearms marketing is so heavily regulated as to be incredibly difficult and ineffective, and second that when gun owners are scared their gun rights might be taken away, they stock up on more guns. Or as former president of the NRA, and acting legend, Charlton Heston would say, "From my cold, dead hands."

In 2011, the National Rifle Association (NRA) released the following information:

Privately owned firearms in the U.S.: Approaching 300 million, including nearly 100 million handguns. The number of firearms rises over 4 million annually.
Gun owners in the U.S.: 70-80 million; 40-45 million own handguns

In comparison, in 2008, the NRA said, “Handguns account for over one-third of Americas' 250+ million privately owned firearms. More than one million new handguns are sold in the U.S. annually.” In less than three years the NRA estimations went from 250 million privately owned firearms (2008) to 300 million (2011).

Also note that the NRA estimated prior to December 2011, that firearm sales increase over four million annually, and yet in December 2011 more than 1.5 million firearms were sold. But it is possible that those numbers are about to change again. Sturm, Ruger & Co. announced this week that it cannot keep up with demand! The company has put a stop on new orders for products until the end of May 2012. (And the stock went wild!) Good news for one gun is good for another, as the competition over at Smith & Wesson also saw stocks shoot up. According to Ruger, the company's retailer programs offered in January and February were so successful that they generated more orders than anticipated. Despite the company's efforts to keep up with production, "the incoming order rate exceeds our capacity to rapidly fulfill these orders." Year-to-date, the company has received orders for more than one million firearms.

The news went over well with investors and Ruger’s shares are up more than 8% at $47.74, setting a new 52-week high.  The stock’s 52-week range is now $18.65-$46.78, and continues to climb.

One last thought from Charlton Heston that may shed one tiny last ray of light on why guns sell better under Democrats. "I intend to dedicate my remaining time as president of the NRA to ensure the Second Amendment is safe from Al Gore and all those who threaten it."


*ATF was intentionally left out of the firearms gross sales charts due to a lack of access to the sales numbers of just the sporting and security division for 2008-2010. Because the available numbers also included the results of the company's space shuttle, long range missile, satellite, and other endeavors, any comparison to small arms manufacturers would have been inappropriate.

**NSSF-adjusted figures. (The National Shooting Sports Foundation (NSSF, which is a major lobbying force and membership organization not just for shooting sports enthusiasts, but also for gun companies, (the NRA is more about the politics of all firearms and the Second Amendment. NSSF focuses specifically on shooting sports from a business perspective.), releases the FBI NICS figures to its members each year, adjusted to include concealed weapon carry permits.)

The Motley Fool has no positions in the stocks mentioned above. ErinAnnie has no positions in the stocks mentioned above. She began her career in the firearms industry at the National Rifle Association in 1999, and has worked in different capacities throughout the industry over several years. She is partial to the Beretta Px4, but loves a good Sig .380, unless you're talking revolvers, then it is S&W all the way.

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