Gun Stocks Resilient as Pressures Build

NEW YORK ( TheStreet) -- As the Senate reconvenes, the specter of its prior session's failed gun-control bill lingers. Public pressure for some government action has remained strong since the Newtown massacre and has continued past the failure of the Senate bill. Reports Wednesday indicate senators are pushing to revive that bill in some form, although the outcome of those efforts is uncertain.

Some large investors are not willing to wait for tighter background checks or other restrictions on gun sales, but are instead unloading their shares of weapons stocks.

The New York City Comptroller John Liu on Wednesday announced that the city's pension plan had divested of its weapons-related stocks, following a trend that began immediately after the Dec. 14 Newtown shooting that left 20 children and six others dead. TheStreet's Antoine Gara outlined the threat to weapons and ammunitions stocks from such public pressure in an article Dec. 19.

Gara pointed out how state pension funds were a vulnerable point for weapons stocks. As Gara reported, California Treasurer Bill Lockyer asked his state's pension funds to dispose of their weapons-related investments, specifically those making weapons that are illegal under California law. The list included three funds run by private equity firm Cerberus Capital Management that owned stakes in Freedom Group, in turn the owners of Remington and Bushmaster brands, among others.

Reacting to the shooting and the California pressure, Cerebrus announced on Dec. 18 it was selling off Freedom Group. The firm said in a statement, "It is apparent that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level."

While weapon manufacturers Sturm Ruger ( RGR)and Smith & Wesson ( SWHC) have both expressed interest, no clear buyer for Freedom Group has yet emerged.

Wednesday's move by the New York City Employees' Retirement System translates into the sale of over $16 million in shares, divided between holdings in ammunition makers Alliant Techsystems ( ATK) and Olin ( OLN), gun makers Sturm Ruger and Smith & Wesson, and Brazilian conglomerate Forjas Taurus, makers of the Taurus brand pistols and handguns.

Quoted in the city's press release, NYCERS trustee Lillian Roberts said, "Guns are responsible for two-thirds of the nation's murders and kill more than 30,000 people per year. Gun violence costs the U.S. one hundred billion dollars annually. This action by NYCERS will send a message to the gun industry that their products are not an acceptable investment for NYCERS' members and retirees."

The New York City Teachers Retirement System had previously divested its weapons stocks holdings.

While the stocks of manufacturers and retailers of publicly available weapons would seem to be vulnerable to tragedies like the Newtown, Conn. shooting and to subsequent public outcry and pressure from large investors, the stocks themselves tell a different story.

In the wake of Newtown in December and the shooting in a movie theater in Aurora, Colo. six months earlier, investors' initial revulsion sent the stocks only slightly lower. In short order, the cheap prices attracted buyers and they rose again, in some cases to new highs.

The chart below, for instance, shows Smith & Wesson's activity across the time threshold of the July 20 Aurora event. Police believe the shooter in that case used a Smith & Wesson .223-caliber AR-15-type assault rifle equipped with a 100-round drum large capacity ammunition magazine. A similar weapon, made by Bushmaster, was used in the Newtown shooting.

SWHC Chart SWHC data by YCharts

The post-Newtown disgust with weapons stocks was more pronounced, and Smith & Wesson remains down over 20% from its highs immediately prior. Meanwhile, retailers and ammo stocks have felt barely a ripple. The following chart compares SWHC with sporting good retailer Cabelas ( CAB) and ammo-maker Alliant Techsystems over a six-month period surrounding the Newtown date of Dec. 14.

SWHC Chart SWHC data by YCharts

The announcement of NYCERS divestiture meanwhile had little or no impact on trading Wednesday, with shares of ATK and SWHC closing down only slightly and OLN up 1.6%.

Given the resiliency of these stocks and the limited scope of the measures the Senate was considering, the potential impact from any Senate initiative would seem to be limited.

-- Written by Carlton Wilkinson