My heart sank when I saw the news of the recent mass shootings in El Paso, Texas and Dayton, Ohio. Even more depressing was the knowledge that these mass shootings have been an almost daily occurrence in the U.S. this year. Public response has become almost predictable. First come the obligatory “thoughts and prayers,” followed by an outcry for tougher restrictions on gun purchases. However, the potential for strict regulations usually causes the shares of gun manufacturers to jump as investors expect a rush of sales before any new laws come into place. But something different happened this time. After the initial stock pop, gun maker share prices fell somewhat dramatically in the following days. Is this a turning point for the divestment of gun companies?
Ethical investors are starting to turn away from the largest gun and ammo manufacturers and retailers: Sturm, Ruger & Co., Inc. (RGR); Olin Corporation (OLN), American Outdoor Brands Corporation (AOBC), and Vista Outdoor Inc. (VSTO). It’s challenging to get the full list of holdings for mutual funds (they only publish a snapshot twice per year), but ETFs are much more transparent so it’s easy to verify whether they’re firearm free.
What is the Canada Pension Plan packing?
Unfortunately, there's no way for Canadians to completely avoid them since the Canada Pension Plan Investment Board (CPPIB) owns $US27 million in shares in three of these companies, according its most recent public disclosures. When contacted by Corporate Knights, CPPIB emphasized these investments were caught up in its passive holdings and are not part of a specific investment strategy to own guns, although the CPPIB along with the Public Sector Pension Plan Investment Board are the only two of Canada’s ten largest pension funds that continue to own any of these gun stocks. Considering the gun stocks comprise less than 0.02% of the pension’s equity investments, they’re not exactly critical to CPP profits and could easily be dumped, if enough Canadians complain.
Pressure mounts on retailers
Weapons makers aren’t the only ones facing scrutiny. There are growing calls for big retailers like Walmart (WMT) to stop selling guns in their stores after 22 people died in the El Paso Walmart shooting in early August. Although Walmart stopped selling assault rifles in 2015 and raised the age limit to buy a gun from 18 to 21, the retailer still accounts for about 20% of ammunition sales in the U.S. with no plans to stop. Additionally, Walmart allows customers to openly carry firearms in its stores in states where it’s legal to do so. Walmart has said that it won’t be making any policy changes and continues to support Republican lawmakers who tend to be against stricter gun controls.
Sustainable Stock Showdown: Walmart vs Dick's
Investors looking to ditch their shares in Walmart and actively encourage a chain that’s moving away from guns should take a closer look at Dick’s Sporting Goods (DKS). Before last year, Dick’s Sporting Goods had a large hunting department that sold all kinds of guns, including assault rifles. But that changed after CEO Edward Stack learned that the school shooter that killed 17 people in Parkland, Florida had purchased a shotgun at Dick’s. Even though the shotgun wasn’t used in the mass killing, Stack took decisive action and followed Walmart by removing assault rifles from stores and raising the minimum age from 18 to 21.
Going further, Dick’s removed the entire hunting department in 10 stores as a pilot project and hired three Washington lobbyists to push for stricter gun controls. Sales in these stores actually improved, leading the company to pull the hunting department out of an additional 125 locations (roughly 20% of stores) last week. If current trends persist, it’s easy to imagine that Dick’s will stop selling guns altogether.
From a purely financial perspective, Walmart is tough to beat. It is, by far, the largest bricks and mortar retailer in the world with a market cap over 100 times larger than Dick’s Sporting Goods. Walmart has outperformed Dick’s over the last five years, so investors should be cautious in dumping it altogether. But if your goal is to own companies who are more progressive on gun issues, then Dick’s Sporting Goods is a more attractive purchase.
Beta is a measure of a stock’s volatility in relation to the market. By definition, the market has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the market. A stock that swings more than the market over time has a beta above 1.0. Lower beta means less risk.
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Tim Nash blogs as The Sustainable Economist and is the founder of Good Investing.
