Editors Note:

Political candidates can and do influence the market and individual stocks. Sometimes they do it by accident with a casual remark and sometimes a full out position lifts or kills entire sectors. Think about the "We are going to put the coal industry out of business" remarks that crushed the coal sector. Clinton's position on guns is lifting the gun stocks on fears she might actually get elected and put her plans in motion.



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RGR - Sturm Ruger - Company Profile

We were stopped out of Ruger on a put position last week because shares appear to have bottomed on the escalation of rhetoric in the political campaign. Clinton is a rabid anti-gun politician and has even talked about gun confiscation like Australia did several years ago. She claims she is not anti-gun but no politician ever runs on that kind of platform. It is only after they get into office does their true feelings come out. Since Clinton has been in political over 30 years it is not hard to see what she has done in the past and read between the lines in this election year. Gun owners are not stupid. They realize a Clinton presidency and the Supreme Court appointments could dramatically change gun laws over the next four years. Every poll that shows Clinton gaining ground will send more buyers to gun stores and gun shows looking to add a couple of guns to their collection while they still can.

We are at the end of September and the FBI background checks will be released over the next few days. If they have risen as expected it will lift Ruger out of the 6-week decline.

Original Trade Description: September 15th.

Sturm, Ruger & Company, Inc. designs, manufactures, and sells firearms under the Ruger trademark in the United States. It operates in two segments, Firearms and Castings. The company offers single-shot, autoloading, bolt-action, and sporting rifles; rimfire and centerfire autoloading pistols; single-action and double-action revolvers; and firearms accessories and replacement parts, as well as manufactures and sells steel investment castings and metal injection molding (MIM) parts. It sells its firearm products through independent wholesale distributors to commercial sporting market; and castings and MIM parts directly or through manufacturers' representatives. The company also exports its firearm products through a network of commercial distributors and directly to foreign customers comprising primarily of law enforcement agencies and foreign governments. Company description from FinViz.com.

In Q2, RGR reported earnings of $1.22 that beat estimates for $1.19. Revenue rose +19% to $167.9 million. The company said the new AR-15 clone, the AR-556 was responsible for one-third of all sales.

However, the pace of sales growth declined from the 26% rate in Q1. Ruger also surprised investors with a new CEO succession plan. The highly regarded Michael Fifer will retire in May and be replaced by the COO Christopher Killoy. The company had not mentioned a possible succession plan at the last shareholder meeting. Killoy is a good choice because he graduated from West Point and worked at both GE and competitor Smith & Wesson before joining Ruger as head of sales in 2003. He will only be the fourth CEO in Ruger's history.

The slowdown in sales growth was accompanied by a decline in background checks. FBI background checks slowed in August to only a 6% rise compared to 37% growth in July and 39% in June. The actual number of checks fell from 2.19 million in July to 1.85 million in August. August is typically a slow month for gun sales. The four best months of the year are September through December.

The gun makers have been posting some outstanding earnings thanks to rapidly rising gun sales only those sales are slowing now that Trump has pulled even or slightly ahead of Clinton. Trump is pro gun and Clinton is anti gun. As long as his numbers are improving, gun sales are likely to slow. However, should Clinton surge into the lead again, the numbers will rocket higher. Consumers are not going to spend hundreds of dollars to buy another gun if they think their gun rights will be safe for another 4 years. If Clinton surges into the lead again, they will be out in force buying those "extra" guns. The biggest surge will occur if Clinton wins the election on Nov 8th. At that point we want to be long every gun manufacturer and ammunition maker.

Earnings Nov 1st.

Ruger shares bottomed on September 20th at $54.41 and have risen to test $58 on Thursday in a bad market. Shares did decline at the close but only lost 13 cents. That is very good relative strength.

I am using the $60 strike instead of the $57.50 because it is cheaper and we will have less at risk if the FBI background checks are weak.

Buy Nov $60 call, currently $2.20, no initial stop loss.


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