The defeat of gun control legislation in the US Senate yesterday (April 18) was, paradoxically, bad for gun company stocks. Before the bill was defeated, shares in gun makers and related companies had gone up, because some people feared that new laws would put limitations on gun purchases, and had rushed out to buy weapons before those regulations took hold. But investors clearly believed that those worries would dissipate with the defeat of the gun control bill.
Today, though, as large parts of Boston remained in lockdown and thousands of armed police searched house-to-house for the remaining suspect in the Boston Marathon bombing, shares of ammunitions maker Olin Corp went up by almost 2.5%, while gun maker Sturm & Ruger was up by about 1.85% in afternoon trading. Cabela’s Inc, which largely depends on gun sales for revenue, saw a 1.6% bump today, while gun and ammunitions maker Alliant Techsystems saw a similar rise in its shares. Even Smith & Wesson, which had been lagging behind competitors in share performance, edged up by the close of market today.
This is typical after a mass shooting or terror attack in the US. Investors expect gun companies’ sales to rise as people stock up on weapons for self-defense. After the massacre at Sandy Hook elementary school in Newtown, Connecticut in December, which left 20 children and six adults dead, the number of FBI weapons background checks reached record highs. March 2013 marked the fourth straight month where requests for FBI background checks related to gun purchases topped 2 million.
The increased demand for guns, especially in the wake of the Boston explosions, may also help private equity firm Cerberus. The buyout shop has been trying to sell portfolio company the Freedom Group, which made the rifle used in the Connecticut shooting. After that tragedy, two large pension funds that invest in Cerberus urged the firm to sell Freedom Group, because of the bad publicity. The irony is that that shooting, and now the Boston manhunt, has increased the demand for guns and made the Freedom Group potentially more valuable.
Cerberus founder Stephen Feinberg, a conservative who is a supporter of the US military, may bid for the firm. But he may have competition from other suitors who also see the value in owning a gun maker in a frightened country where renewed gun control is, for now at least, off the political agenda.