Big Gun Control Plan for President Obama, Big Profits for Gun Sellers

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One of President Obama’s first priorities of his new term is set to be about gun control laws. Following the tragic Newtown shooting, he held two press conferences where he signaled a desire to pass some of the most sweeping gun control laws in three decades, the most prominent of which is a ban on “assault weapons,” which was repealed in 2004 after 10 years. The measures drew criticism from gun-rights advocates like the National Rifle Association, as well as from Republicans, who in their capacity as the majority party in the House of Representatives, would probably not allow any gun bans from becoming law.

However, the markets have already rendered a verdict of this new reality, and if you are a gun maker or a gun seller, the debate has driven up sales. As has been the case the last few years, whenever there is a potential that certain weapons will be banned, gun-owners will flock to their nearest store and pick up those weapons, and most gun sellers will stand against any politician that wants to take away one’s guns. Since the Newtown shooting, Wal-Mart (NYSE: WMT) has been one of the biggest players in this gun rush, having nearly run out of guns and ammunition in the weeks after the shooting. They have also been the subject of gun control lobbyists, who insist Wal-Mart stop carrying what have been deemed “assault weapons,” like the AR-15, a semi-automatic rifle popular with gun enthusiasts and collectors that may be the subject of a new weapons ban. Wal-Mart has refused to back down on the gun-control lobby’s demands to stop selling these weapons, which is a good move considering how lucrative the market is. Unfortunately, Cabela’s (NYSE: CAB), an outdoor store chain, has considered taking down the Bushmaster AR-15, the gun used in the Newtown shootings, although this could be a temporary thing just in Connecticut, in the interests of goodwill towards the public.

Even with Cabela’s decision to temporary pull the Bushmaster rifle, it still leaves this administration with a massive challenge. The more a government plans to take away any sort of gun, the more likely it is those guns will be bought and sold, often at higher rates. The AR-15’s price doubled after the first assault weapons ban was passed in 1994, meaning that investors in the know went straight to the gun store and bought as many as they could. Add to the fact that many people are buying multiple firearms; the plan of banning their sale to keep them out of the hands of criminals seems futile because most of the guns have already been bought. This would lead to a black market for these semi-automatic weapons, which will mean big money for shady dealers, and big trouble for law enforcement. Keeping these weapons legal and out in the open is a lot safer because most states have a basic gun registry and gun safety structure, which makes tracking ownership of these guns much easier than if they were on the black market.

In the short term, the gun run has been very good for manufacturers. Smith & Wesson (NASDAQ: SWHC) and Sturm Ruger (NYSE: RGR), have seen their stock prices rise following the gun-control plan announcement, largely on the strength of the recent gun run. S&W’s gains, though, will be watched extremely close by gun enthusiasts and gun rights advocates because they supported gun control measures a couple decades ago, and it nearly cost the company everything due to the blowback. It is unlikely that we will be seeing a public stance from S&W this time around, given how the company was pilloried the last time around. Strum Ruger is a much smaller player than S&W, so any legal shift would impact them more, and they may be inclined to stand against gun control legislation in the interests of keeping and expanding their market share.

The reaction from the gun market will be an indicator of the political winds regarding gun control, but given the recent burst of gun sales, any threat of prohibition is being taken seriously by gun owners, who are still a powerful force in the political world, and who have the Constitution on their side, a powerful weapon to have in your arsenal.

jmckenna15 has no position in any stocks mentioned. The Motley Fool owns shares of Sturm, Ruger & Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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