Obama’s Great for the Economy….of Gun Makers!

Obama’s Great for the Economy….of Gun Makers!

As so many readers reviewed my review of The Big Short, which featured investments, I thought a good follow-up post would focus on the stock market.

Obama’s “Theater of the Absurd” gun control press conference played well on Wall Street, as stocks of gun makers soared in trading yesterday.

Smith and Wesson stocks jumped over 11% in trading.

Earnings per share is estimated to come in at $0.39 to $0.41, which is way above the previous estimate of $0.27 to $0.29. Analysts were expecting only $0.29.

According to a press release, “the sell-through rate of its products at distribution has been stronger than originally anticipated, resulting in reduced distributor inventories of its firearms.”

In other words, people are buying guns faster than merchants can restock the shelves.

Sturm, Ruger & Co. is challenging its highs.

Sturm, Ruger & Co. is now challenging resistance at the highs of the year, trading at a 5-month high. The stock appears to be benefitting from the guidance increase by competitor Swith & Wesson (SWHC) this morning and the news that President Barack Obama is preparing to announce a series of executive actions aimed at reducing gun violence in the U.S.

Cerberus Capital Management recently considered selling sell Freedom Group, maker of the Bushmaster XM15-E2S rifle that had been used in the Sandy Hook Elementary School shooting.

But wiser heads prevailed.

…[Cerberus Chief Executive Officer Stephen A.] Feinberg is hanging onto Freedom Group, people familiar with Cerberus say. After a near-revolt among limited partners, he’s effectively bought out investors who wanted to get out of the gun business and settled in as the key financial player behind Freedom Group.

Today, perhaps no company better reflect the nation’s fraught relationship with firearms than Cerberus, a private equity firm with more than $29 billion in client assets, and Freedom Group, whose brands include Bushmaster and DPMS/Panther — leading makers of the assault-style rifles that gun-control advocates want to see banned — as well as the storied Remington.

Feinberg, an avid hunter, has gone largely quiet about the gun company, which by its own count sold $1.01 billion worth of firearms and ammunition in 2014. He and other Cerberus executives declined to be interviewed for this story.

He was probably too busy counting his money to chat.

And for those who want to diversify their portfolio, Dr. Michael Burry (the genius investor featured in the film) is focusing on water!

“Fresh, clean water cannot be taken for granted. And it is not — water is political, and litigious. Transporting water is impractical for both political and physical reasons, so buying up water rights did not make a lot of sense to me, unless I was pursuing a greater fool theory of investment — which was not my intention. What became clear to me is that food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas. This is the method for redistributing water that is least contentious, and ultimately it can be profitable, which will ensure that this redistribution is sustainable. A bottle of wine takes over 400 bottles of water to produce — the water embedded in food is what I found interesting.”

Personally, I sense an investment opportunity in booze. For example, Anheuser Busch stock went up 22% in 2015. And with Obama’s busy signing executive orders during his final year, I think Americans are going to need to console themselves. A lot.

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