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Smith & Wesson Holding Corp., Sturm, Ruger & Company: Will Scalia’s Death Bump SWHC, RGR?

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The recent passing of U.S. Supreme Court Justice Antonin Scalia squarely placed the ever-vitriolic political landscape on a minefield. This is both tribute and a human tragedy.

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While the nation attempts to mourn the loss of an iconic statesman - Scalia was appointed by former President Ronald Reagan in 1986 - the growing political divide has made this an unfortunately ugly affair.

Such deep-rooted suspicions are much more valid than may be initially realized. Justice Scalia was a strong proponent of gun owners' rights, and was hailed among conservatives when he wrote the majority opinion in District of Columbia v Heller . In this landmark case, Scalia argued that mandates requiring guns to be kept at home and disassembled violated the Second Amendment as it unreasonably placed restrictions on self defense.

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Notably, the decision was a slim one, with only five of the nine justices arguing in favor of gun advocates.

Scalia's Place in the Gun Rights Debate

With Scalia's death, the court's ideological spectrum is evenly divided. But worse yet for organizations like the National Rifle Association, gun control lobbyists are becoming more shrewd in their line of reasoning. Instead of attacking firearm owners directly, the focus has turned towards the actual wording and intentions of the Second Amendment. Is the ability to acquire a gun a personal liberty, or a collective right reserved for a militia or a government-endorsed military organization?

In this regard, Scalia has been consistently unambiguous. Drawing upon historical context, Scalia argued in District of Columbia v Heller that strictly limiting gun ownership to a government force would negate the civil liberties for which the Constitution stands.

But with his seat now vacant, many are expecting current President Barack Obama to press aggressively for a left-leaning justice. President Obama did no favors in dispelling this cynical accusation when he failed to attend Scalia's funeral, drawing sharp criticisms of playing partisan politics.

Given the heated nature of this year's presidential race - especially with outspoken billionaire Donald Trump in the mix - the Scalia row is unlikely to wane any time soon. This places the two publicly traded firearms companies, Smith & Wesson Holding Corp . ( SWHC ) and Sturm, Ruger & Company ( RGR ), in a unique position in the financial markets.

It's no secret that Obamaphobia - the real or perceived fear that the president will obstruct gun rights - has been a tremendous boon for Sturm, Ruger and Smith & Wesson.

A notable example is the banner year of 2013, in which SWHC and RGR returned an average of 52% in the markets. The gains were primarily due to concerns of potential new gun control laws in the wake of 2012's Sandy Hook massacre .

This isn't to suggest that bloodshed is good for Sturm, Ruger's or Smith & Wesson's businesses, as the data indicates otherwise. According to Gun Violence Archive , there were 26 more mass-shooting incidents reported in 2014 than in 2013, yet both SWHC and RGR tanked that year.

Rather, it is the likelihood of tragic incidents spurring Second Amendment restrictions that boost sales - and typically, investment returns for SWHC and RGR go along for the ride.

Surging Sales for SWHC, RGR

Depending on which side of the political spectrum you stand, the hard facts are either affirming or ominous. Since late-2008, Obamaphobia has resulted in three of the biggest monthly spikes in gun sales in this century. The most recent surge occurred in December of last year, when President Obama called for tighter restrictions on so-called assault rifles in the aftermath of the San Bernardino terror attack.

The statistics are also unmistakable in terms of the handsome benefits awarded to early Smith & Wesson or Sturm, Ruger shareholders. Since the beginning of 2010, SWHC has jumped 456%, while RGR has tacked on an unbelievable 619% of equity value. Year-to-date, the gun stocks are strong leaders in the markets - SWHC is up 13%, and RGR has bragging rights at 17%.

Bottom Line for Smith & Wesson and Sturm, Ruger

If history does indeed repeat itself, both Smith & Wesson and Sturm, Ruger stakeholders will have another banner year in 2016.

With the death of Justice Scalia and Thursday's mass shooting in Kansas fresh in voters' minds, efforts to push firearm restrictions are almost a done deal. That fear will then drive more gun sales, encouraged undoubtedly by the NRA and like-minded lobbyists.

Ultimately, politics is a messy business. The loss of a great statesman in Justice Scalia further highlighted this ignominy. Rather than to solely mourn a national tragedy, the focus has shifted towards ideological positioning and gamesmanship.

However uncouth it is, both sides of the political spectrum have much at stake in the Scalia row. But few, if any, will financially benefit more than Smith & Wesson and Sturm, Ruger.

Like it or not, buying either SWHC or RGR may be one of the few strong bets remaining.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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The post Smith & Wesson Holding Corp., Sturm, Ruger & Company: Will Scalia's Death Bump SWHC, RGR? appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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