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Police-Gear Surge Helps Gun Stocks Shoot Higher

11 October 2013 in Trading Ideas

What might simply look more equipment for another episode of Cops is turning out to be a bullish development for the stocks of weapons makers.

Shares of Taser International (yes, that Taser) are sitting near multiyear highs in the wake of signs that more law-enforcement officers across the country are going to be wearing the company’s wearable lapel cameras as a part of their regular gear.1

The Los Angeles Police Department said just last month that it expects to work with Taser to field-test cameras over a 90-day period. The LAPD’s commissioner said he had raised about half the $1 million he needed to buy the camera’s for 1,500 officers.

Taser’s cameras received a huge boost this summer after a federal district court judge ordered a pilot program in New York for officers to wear body cameras after ruling that the City’s Finest discriminated against Blacks and Hispanics.

Shares of Taser went on a tear, jumping about 85% over a seven-week period.

guns guards gates motifTaser’s stock happens to have a 14% weighting in the Guns, Guards and Gates motif, which, thanks in part to Taser’s rally, has risen 5.8% this month. It’s also up 21.5% so far in 2013.

The S&P 500 is off 0.7% for the past month, and has increased 15.1% in 2013.

But it’s not only the maker of stun guns that is doing well, it’s also been boom times for makers of firearms for consumers. Sturm Ruger, which also has a 14% weighting in the motif, has gained 17.1% in the past month as many US gunmakers had strong starts to the year.

The reason for that is not a grey area: Fears of new gun controls in the wake of mass shootings such as the Newtown school massacre and the Aurora theater shooting have driven demand for guns especially among first-time buyers, including a growing number of women and pensioners.

But will that demand continue? Investor perception may hinge on how gunmakers fare this earnings season. Motif component Smith & Wesson (a 9% weighting) has slipped nearly 3% this month, in part due to the company’s weak fiscal second-quarter forecast it delivered in early September.2

Longer term, the current high demand for Taser’s two main product lines could eventually point the way for other weapons and security-device makers to avoid the peaks and troughs of consumer behavior.

1Nancy Gondo, “Taser Stock Jolts Up On Growing Law-Enforcement Trend,” Investor’s Business Daily, Sept. 18, 2013, http://news.investors.com/091813-671556-taser-stock-jolts-up-wearable-camera-trend.htm?ven=yahoocp&src=aurlled&ven=yahoo, (accessed Oct. 9, 2013).

2Aditi Shrivistava, “Gunmaker Smith & Wesson’s 2nd-qtr forecast disappoints, Reuters.com, Sept. 5, 2013, http://www.reuters.com/article/2013/09/05/smithandwesson-results-idUSL4N0H13XG20130905?type=companyNews&feedType=RSS&feedName=companyNews&rpc=43, (accessed Oct. 9, 2013).