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Sector Snap: Gun companies

NEW YORK -- Benchmark Research believes the sell-off last week of shares in firearms manufacturers was overdone, and reiterated a buy recommendation on the stocks of the biggest producers.

Some investors were spooked by a monthly decline in the number of firearms checks being performed. Those checks, under the National Instant Criminal Background Check System, are considered a good barometer of arms sales. Such security checks are mandated under the Brady Handgun Violence Prevention Act and an uptick in activity can indicate that more people are trying to buy guns.

Many industry watchers have speculated that firearm sales are rising with some people fearing that the re-election of President Barack Obama will lead to tougher gun restrictions. The same thing happened four years ago, though there was no such change to gun laws.

Benchmark's Mike Greene wrote that the adjusted NICS climbed 14.7 percent in September. This is below the 20 percent or more growth experienced over the past four months.

While checks on long guns slowed, Greene says checks for handguns rose 23 percent in September. The analyst says handgun sales have been the primary growth drive for Smith & Wesson Holding Corp. and Sturm, Ruger & Co. over the past several years, making this figure more important to their businesses.

Sales of modern sporting rifles is also growing, Greene said, which is significant for Smith & Wesson because those rifle sales make up 75 percent of its total long gun revenue.

Shares of Smith & Wesson rose 29 cents, or 2.8 percent, to $10.51 in afternoon trading. The stock has traded in a 52-week range of $2.72 to $11.24. Sturm, Ruger & Co.'s shares added 75 cents to $45.40.