In the name of jobs and an improved economy, the Obama administration is angling to drastically increase munitions exports over the next couple years.
The plan involves loosen regulations on the export of firearms and other weapons systems so that gun manufactures – one of the bright spots in an anemic economy – can continue to grow and expand their businesses.
Those who work within the firearm and ammunition industry are thrilled at the prospect of slashing regulations and removing red tape.
The NSSF, which represents firearm manufactures, is aiding in the negotiations for a new set of rules that would help unleash the untapped potential of an already vibrant industry (the firearms and ammunition industry grossed $31 billion last year, to read more click here).
However, not everyone is on board with the idea of relaxing export rules on munitions. In fact, some within Obama’s own executive branch are resistant to the plan, arguing it threatens his national security agenda.
The strongest objections came from Department of Homeland Security.
In an internal memo obtained by the Wall Street Journal, the department said the proposed changes risked hindering the ability of its immigration and customs agents “to prevent or deter the illegal export/transfer of lethal items such as advanced firearms to criminal groups, terrorist organizations, or enemy combatants.”
The memo added: “This increased likelihood of the illegal export of lethal advanced firearms may put U.S. military, law enforcement or civilian personnel at increased risk.”
Rep. Ileana Ros-Lehtinen, (R., Fla.) was also unnerved by the idea. Rep. Ros-Lehtinen, who heads the House Foreign Affairs Committee, told WSJ that the changes would “create vulnerabilities that will likely be exploited by rogue exporters, front companies, foreign intelligence services and extremists.”
Thus far, preliminary changes to the rules include categorizing close-assault weapons, sniper-rifles, combat shotguns and ammunition under a “lesser controlled” Commerce list. Currently, those items reside under a “strict controls” category, according to the Homeland Security memo.
The Commerce list also names 36 countries deemed “trusted parties,” in which arms may be exported to with minimal government oversight. These countries include NATO members such as the U.K. and Turkey, as well as non-NATO allies in Latin America and Asia, according to WSJ.
When asked about the progress of the new export rules, a spokesman for the Obama Administration intimated that nothing was set in stone and concerns raised by government agencies were “being addressed.”
Upon hearing news of the plans to loosen regulations, Robert Weinstein – a financial writer for the street.com – had compiled a list of six firearm companies who stand to benefit from a deal — if it gets made.
Here is some of what he had to say (to read his whole article, click here):
I created a list of companies that are unlikely to fall in value if nothing happens, yet have significant sales if allowed to increase sales. It’s a “heads I win, tails I break-even” type of toss, and one I take advantage of every time one comes my way.
Quick-draw Smith & Wesson is up 125% in the last 12 months and over 66% since the start of the year. I do have a concern about the stock getting ahead of itself; however, this is mitigated by the forward price-to-earnings ratio remaining under 18.
Not to be outdone, Ruger is performing like a marksman with gains of 138% in the last 12 months and revenue improving from $255 million in 2010 to $328 million in 2011 (Ruger’s best year).
Between Smith and Ruger, I have to lean toward Smith. Ruger’s chart appears fearfully extended, especially at the monthly level and with the P/E ratio over 20.
Pictures courtesy of Reuters / WSJ / The Street.com