Gun stocks decline after Connecticut tragedy

Shares of two of the largest gun makers, Smith & Wesson (SWHC) and Sturm Ruger (RGR), continued falling Monday amid new interest in gun control laws following last week's horrifying shooting at a Connecticut elementary school.

President Barack Obama and New York Mayor Mike Bloomberg, among others, are showing support for new gun restrictions. But whether those policies will ever see the light of day is another question. The National Rifle Association remains a formidable political force, as does the lesser-known National Shooting Sports Federation, which happens to be based in Newtown, Conn.

Republicans who control the U.S. House of Representatives aren't keen on the idea of enacting new gun control legislation. But the tragic circumstances of the shootings Friday at Newtown's Sandy Hook Elementary School, in which a 20-year-old gunman opened fire and killed 20 children and six educators, may change the debate about gun violence.

As Wedbush analyst Rommel Dionisio said in an interview with Bloomberg News, this rampage was unique because of "the number of children (involved), and the fact that it was very young children." Shares of Smith & Wesson and Sturm Ruger have soared this year because many gun owners feared that President Obama would crack down on gun ownership in his second term. Those fears may come to pass.

But what gets lost among the discussion about guns about is a sense of economic reality. For one thing, the rates of gun ownership have been on a decline for decades. Data cited by Think Progress shows that in 1977, 54% of adults lived in a household with a gun. By 2010, that figure had shrunk to 32%. Smaller gun makers have been struggling financially for years. Freedom Group, a company backed by Cerberus Capital Management that owns such firearms brands as Remington and Bushmaster, shelved plans for an initial public offering last year. Freedom Group, though, is optimistic about its prospects. 

"We believe the continued economic uncertainty and the outcome of the 2012 presidential election is likely to continue to spur both firearms and ammunition sales," the company said in a recent SEC filing. "We believe the industry is also experiencing trends toward increased recreational and shooting sports and home defense."

The tough challenge for policy makers is figuring out which guns need to be controlled. Take assault weapons. To non-gun owners, the name conjures up images of fully-automatic machine guns spraying a small area with a huge number of bullets like the M-4, the rifle favored by the U.S. military. According to the Shooting Sports Federation, the differences between assault weapons and otherwise legal firearms are cosmetic, such as the type of stock used on the weapon. Critics have long argued that these guns can easily be converted to automatic ones and pack more firepower than a user would need for hunting or target practice.

The U.S. has the dubious distinction of having more guns than people and by far the highest rate of gun ownership in the world. Connecticut Gov. Dan Malloy has said that his state has one of the toughest gun control laws in the country. Though some argue that the tragedy could have been averted if some of the teachers were armed, that seems like wishful thinking.  People need to be leery of easy answers to complicated questions. 

For now, the gun industry is keeping a low profile. The NRA has reportedly taken down its Facebook page and officials I contacted didn't return phone calls and emails seeking comment.

Let's hope that people will point to tragedy at Sandy Hook Elementary School as a watershed moment where the U.S. was able to strike a balance between the rights of law-abiding gun owners with those of most Americans who choose not to exercise their right to bear arms. I hope my wish isn't too far fetched.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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