This is the Peril of Publicly Held Gun Companies

You may have heard that at Ruger’s shareholders meeting last week, a shareholder’s proposal which was basically a call for gun control, passed.  Ruger's Board of Directors had recommended that it be defeated. With its passage, Ruger is required to comply.  They did however fail in another proposal that would have loosened the companies ties to the NRA.

Who were the shareholders that made the proposal? According to the New York Times, a coalition of religious women and health care networks which are members of the shareholder advocacy organization Interfaith Center on Corporate Responsibility, representing the Sisters of the Holy Names and 10 other "faith-based organizations" and Catholic Health Initiative.  Members of the group bought shares in Ruger and Smith and Wesson two years ago hoping to influence the way the companies do business. Ruger's largest shareholder, money management firm BlackRock and Vanguard, another large investor in the company, backed the "shareholder's activist resolution" which is how Ruger described the proposal. John Richardson at the blog No Lawyers, only Guns and Money, has a great breakdown of what occurred.  Ruger's response is below:

"The proposal requires Ruger to prepare a report. That's it. A report," Killoy said. The company will follow through on its obligation to produce that report, he said.

"What the proposal does not, and cannot do, is to force us to change our business, which is lawful and constitutionally protected. What it does not do, and cannot do, is force us to adopt misguided principles created by groups who do not own guns, know nothing about our business, and frankly would rather see us out of business."

One of the shareholders, Rev. J. Michael Solberg — a pastor in Hinsdale, Ill., who is also a leader of the Metro IAF's Do Not Stand Idly By campaign; objected to CEO Kilroy's characterization:

"We are not gun control advocates," Solberg said. "We are not encouraging you not to make certain weapons. We are encouraging you to take the reputational risks of this issue seriously, and engage with those who want to make a difference."

While it does not require Ruger to change the way they do business, it does demonstrate the perils faced by publicly held gun companies.  Malcontent shareholders were able to wield more power than the numbers of shares they likely hold would normally have allowed because they were able to convince large shareholders like BlackRock and Vanguard (which have been a target of Parkland activist David Hogg's boycott calls) to support their efforts. The same coalition will be pushing identical efforts at the shareholder meeting of American Outdoor Brands Company (Smith & Wesson) later this year.

Being a public company provides access to capital, but it does come at some price - like activist investors. It's likely most of the time companies are able to beat back such attempts.  This time however nervous large investors like BlackRock and Vanguard helped push these shareholders over the finish line.  Will this give pause to other firearms related companies that are looking to go public?  Only time will tell.

Strong Year for Firearm Manufacturers

This shouldn't be suprising, given the fact firearm sales have reached historic highs.  But some investment managers who talked to ABC News for this story expressed surprise:

Peter Zeuli, CFA, head portfolio manager at Philadelphia Investment Partners, tells ABC News he is surprised how well Ruger, Smith & Wesson and other gun makers have performed. Ruger's earnings he calls consistently strong. He used to own the company's shares, he says, but had sold the stock, in part on expectations that the Obama administration would push through new firearms restrictions. That has not happened.

Most people would probably attribute the manufacturers good fortunes to the fact Obama's gun control push sparked sales to go through the roof.  One portfolio manager had a different explanation:

Randy Bateman, chief investment officer of the Huntington Asset Advisors in Columbus, Ohio, tells ABC News there's another explanation for gun makers' good times: Rural consumers have more money in their pockets. Farm incomes, he says, have risen in the past year. On top of that, hydraulic fracturing in farm states has brought in more money. That, he says, translates into increased sales by gun makes.

Whatever the cause, firearms remain the only industry that has done well in the five years of Obama's economic policies.

Hat tip to The Gun Wire.

Firearms Stocks Recommended

I subscribe to the Money and Markets email list. Today's email listed three picks as possible good choices for investors. Pick number two was:

Guns
Exchange-traded examples include Sturm, Ruger & Company (RGR) and Smith & Wesson (SWHC). Smith & Wesson has been a doormat until recently. But both it and Ruger enjoyed nice moves in the past couple weeks.

While Smith & Wesson has announced big plans for future growth, I prefer Ruger.
Its revenues and earnings are increasing, and the company's backlog in orders jumped 72 percent from the 3rd quarter to the 4th quarter.

Why is the outlook improving for gun manufacturers?

Maybe because while other industries are sliding down a slippery slope of lower demand, the output of U.S. small arms manufacturing is forecast to grow at an annual compounded rate of 2 percent between 2008 and 2013, as seen on the following chart ...

While others are in the perverbial toilet, firearms appears to be a safe investment for the time being.