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Smith & Wesson, Ruger Experiencing Losses After Slow Sales

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Smith & Wesson, Ruger Experiencing Losses After Slow Sales

Smith and Wesson stocks have been hemorrhaging in the last two months, due largely to lightning gun sales, and analysts believe it may get worse.

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The above graph shows Smith and Wesson stock (SWHC) climbing until partway through March, then taking a nosedive at the beginning of April.

Smith and Wesson Has Lost Significant Value Recently

  • It lost almost a third of its value in April and May
  • It took a 5% drop on Monday, June 6th.
  • It took an even worse 7% decline on Friday, June 10th when the softening on gun sales became apparent

Ordinarily, This Would Be the Point at Which Investors Bought into the Stock

Smith and Wesson has grown a lot since 2009—almost 900%. 

Usually, a decline in its price would simply signal investors to leap in and buy this crazy-growing stock while prices were low.

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[ms_featurebox style=”4″ title_font_size=”18″ title_color=”#2b2b2b” icon_circle=”no” icon_size=”46″ title=”Recommended Link” icon=”” alignment=”left” icon_animation_type=”” icon_color=”” icon_background_color=”” icon_border_color=”” icon_border_width=”0″ flip_icon=”none” spinning_icon=”no” icon_image=”” icon_image_width=”0″ icon_image_height=”” link_url=”https://offers.thecapitalist.com/p/58-billion-stock-steal/index” link_target=”_blank” link_text=”Click Here To Find Out What It Is…” link_color=”#4885bf” content_color=”” content_box_background_color=”” class=”” id=””]This one stock is quietly earning 100s of percent in the gold bull market. It’s already up 294% [/ms_featurebox]

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This Time, However, it May Not Work Out That Way

Right now, the analysts think that the uptick in handgun sales that acted as an impetus for the prodigious stock gains of Smith and Wesson might have plateaued. 

The very same sales also shot its competitor, Sturm, Ruger & Co. (RGR)’s stock up more than 1000% in the same timeframe. 

It appears, looking at a graph of RGR, that the slowdown in sales also impacted Ruger:

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The drops are not as sharp in March and April, but there is a sharp drop at the beginning of June. 

The numbers bear this observation out, as RGR dropped 7% to $59.98 per share on the same Monday that Smith and Wesson lost 5% and ended at $21.54 per share.

Handgun Sales are Still Growing, Just Not As Fast as Before

There are reliable proxies for gun sales which indicate that the sales are slowing. 

This would mean that Smith & Wesson and RGR won’t take off skyward again, and may even have reached a temporary peak.

Experts feel that the gun merchants could end up moving sideways for at least five months, with no guarantee of a rally afterward.

FBI Background Checks Show Slowdown Clearly

It makes sense that FBI background checks on potential gun owners would be a good proxy for actual gun ownership, and right now the story they are telling is not promising for Smith and Wesson. 

While the federal government did process 2.1 million applications this May, that represents a 13% drop from April. 

It’s also down from March and February.

The caveat with the background check readings is that they aren’t perfect. 

Some people don’t even pass, and some who do don’t buy any guns, or buy more than one. 

But it’s considered a good measure nonetheless.

Gun Sales Themselves May Simply Have Peaked for the Time Being

The following chart illustrates recent spikes in gun sales and the sort of incidents that usually cause them:

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Two events would appear to spike gun sales—terrorist/shooting attacks and President Obama winning elections. 

Most recently, a spike is seen that coincides with the attack in San Bernardino in December of 2015.

Analyst Cowen Believes that the Spike Around Sandy Hook Was Provoked By Fear that the Federal Government would Outlaw Assault Weapons

Cowen points out that everyone and their brother went out to buy the sort of semiautomatic firearm that was used in the attack. 

A similar fear may explain the spikes around President Obama’s elections as there seems to be a real fear that he will attempt to separate Americans from their firearms.

Ironically, This Suggests That if Donald Trump Were to Be Elected, Gun Sales Might Go Down:

  • There would be no fear that he would attempt to enact legislation making guns illegal.
  • Any political rhetoric about controlling guns would lose its bite with buyers knowing he had veto authority.
  • A Hillary Clinton election would probably have the opposite effect.
  • Analysts not only say that there was a surge in December partly because of liberal rhetoric for more stringent gun laws, but they suggest the surge is now fading.

Meanwhile, Analysts Have Several Concerns About Smith & Wesson the Company

Among others, Smith & Wesson is trading at 23 times earnings. 

It may warn investors that it can’t make its 2017 forecasts. 

Meanwhile, RGR pays a 2.5% yield, while Smith & Wesson offers no dividend, making one of them a clear winner for investors.

Conclusion

How the gun manufacturers do in the near future seems to be closely linked with how the gun market itself does. 

The gun market, meanwhile, would seem to depend on factors as diverse as well-publicized incidents of violence and who gets elected president.

It seems possible that the market will actually settle if Trump is elected and spike if Clinton is elected.

Like the election itself, only time and the American people will tell. 

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Is China Digging Itself A Bigger Debt Hole?

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Is China Digging Itself A Bigger Debt Hole?

There is a growing consensus that China has a massive debt problem that is only going to get worse without a serious overhaul. 

China repeatedly tries to prop up her economy with the creation of new credit, which may or may not prove sustainable in the long run. 

Goldman Sachs, in particular, has raised questions about the validity of China’s reported numbers, and now their analyst, Andrew Tilton, has charted out some of the problems.

China Reached a New Credit High in the First Quarter of 2016

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As the chart shows, China created a new credit of nearly 3.5 trillion yuan at one point in the first quarter, and Goldman Sachs says the total for the quarter was something like $1 trillion dollars. 

Needless to say, that’s a humongous amount, and without serious economic growth to sustain it, China may come to regret its debt practices

It cannot be ignored that China is hugely over-relying on debt, and treating it like the solution to all of its problems.

The United States has already learned the hard way that this will not work forever.

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Shadow Lending May Mean These Numbers Are Skewed

  • These numbers may be an underestimate as China has a phenomenon known as shadow lending, which is not subject to normal regulations.
  • Shadow lending remains off the financial books, while still adding to the overall amount of debt in the country.
  • Goldman is particularly disturbed by the lack of accountability involved in this process.

China’s Debt-to-GDP Ratio is Growing

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The chart above shows China’s debt-to-GDP ratio and how far it has gone up in recent years. 

According to CNBC, this is reflective of the fact that credit is now going to pay for existing debts instead of feeding into the growth of the economy.  It’s a vicious cycle that can only work for so long before it finally tanks.

The economy is slowing down even as debt rises, and Goldman points out that the amount of debt China carries is far larger than anyone thinks it is, due in part to shadow lending and due in part to the fact that China’s self-reporting is skewed, to say the least.

Needless to say, Goldman believes that Chinese banks don’t play fair with the regulations and that this only furthers the difficulties the country is facing with debt.

Zombie Businesses Live Off Credit and Drive Down Prices for the World

China is currently home to some of the so-called zombie businesses—steel and aluminum producers that are kept alive by the government. 

These businesses overproduce, saturating the market and making it impossible for themselves to make a living except through credit and government lending. 

The Washington Post reports that banks owned by the state simply roll these company’s loans over and let the manufacturers get on with their business.

While there are good human reasons for trying to keep these businesses alive—for one thing, the loss of jobs alone would be stunning—they ultimately help neither China’s economy nor the world’s. 

An overhaul of China’s social-services system may be necessary to help those who would be put out of work.

The Washington Post Suggests Possible Remedies for Zombie Businesses

  • Retraining programs to prepare workers for service jobs
  • Strong pensions to incentivize retirement in those close to the right age
  • Relocation programs to move workers to available jobs
  • Putting money into education and health to create jobs

Unfortunately, the Greater Debt Problem as a Whole May Not Be So Easily Solved.

With the entire economy essentially kept afloat by debt, China is sitting on one heck of a bubble.

 

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2016’s 12 Most Valuable Brands

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2016’s 12 Most Valuable Brands

Ever wonder how much your favorite brand is really worth, and how it’s doing compared to other brands? 

BrandZ has answered these questions in its Top 100 ranking of the most valuable brands around the globe in 2016. 

Here is its top twelve:

Brand #1: Google, at $229 billion in value

Perhaps unsurprisingly, Google is at the top of the heap. 

Its value went up a staggering 32% from where it was last year, garnering it the top spot.

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As demonstrated by the above graph, it’s easily the most used global search engine. 

So much so that the word Google has become a verb, as in telling someone to google it when you don’t want to have to explain a concept to them.

Also, Alphabet—Google’s parent company—has begun branching out into areas as diverse as anti-aging science and self-driving cars

Positive consumer reaction to these attempts may be part of what pushed Google past Apple and into the number one spot this year.

Google was also number one in the BrandZ ranking in 2014, and consecutively from 2007 to 2010.

Brand #2: Apple, at $228 billion in value

Apple is now trailing slightly behind number one, having gone down 8% in value in the past year.

While the company’s gadgets remain popular, Elspeth Cheung of Millward Brown—the firm that created the BrandZ evaluation—says that Apple needs to work on its people connections, as it may be beginning to lack relevance.

She does, however, praise its investment in Didi Chuxing, the Chinese rival of Uber, as she feels this expansion was a good move.

Brand #3:  Microsoft, at $122 billion in value

This is the second consecutive year that Microsoft has come in third, with its brand valuation climbing by 5%.

Cheung cites Windows 10 as one reason for the brand’s continued success. 

Windows 10 is now the second most used desktop operating system, and Cheung points out that it also works well with tablets, laptops, and mobile devices and even behaves nicely with products by the dreaded Apple.

The company is even working on a Windows Holographic platform.

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Brand #4: AT&T, at $107 billion in value

  • AT&T’s value shot up 20% over the past year
  • Cheung posits that AT&T is changing its relationship with consumers, branching out into entertainment services to become more than a mere telephone provider
  • By acquiring DirecTV last year, AT&T has done wonders for the content it can offer while staying ahead in its sector

Brand #5: Facebook, at $103 billion in value

This is the first time Facebook has appeared in the top 10 for BrandZ when its value went up a staggering 44% this year. 

This should come as no surprise, given how popular it was and has continued to be:

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According to the above, most recently published chart, Facebook remains, to say the least, popular on the Internet. 

Furthermore, Cheung says that the company is growing by staking out new territory, such as creating Facebook Bots for Messenger, which will provide users with access to answers on everything from news to shopping to the weather.

Brand #6:  Visa, at $101 billion in value

  • Visa’s value has gone up 10% since last year.
  • Cheung says that it continues to come up with new ways to make payments—for example, the debit ring that is currently in testing.
  • Cheung also points out that Visa makes online security a priority, which consumers approve of.

Brand #7:  Amazon, at $99 billion in value

It’s no secret that Amazon is a big deal online. 

Look at the following chart of how it won on Cyber Monday last year:

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Cheung says that the company not only fills existing needs but interests consumers in things they did not know they wanted until they visited the site.  The brand has upgraded its delivery and logistics system to the point where some speculate it may be trying to separate from UPS and FedEx, and its value has skyrocketed 59% since last year.

Brand #8:  Verizon, at $93 billion in value

Verizon’s brand value went up 8% in the past year. 

It plans, via its takeover of AOL, to become big in digital media by marrying a big player in mobile to a big player in content production.

Brand #9: McDonalds, at $89 billion in value

McDonald’s brand value has inched up 9% from last year, even as Cheung acknowledges that it has an image problem with regards to people viewing its food as unhealthy.

It is trying to create a healthy image, and has added massively popular all-day breakfasts to its menu, both of which seem to be helping.

Brand #10:  IBM, at $86 billion in value

IBM is undergoing a difficult transformation into a cloud company, and its brand value has slid 8% this year as a result. 

It has also been going through a decline in sales for 16 consecutive quarters, including the worst it has seen since the year 2002.

However, Cheung says that consumers have been wowed by the fact that the company is looking into artificial intelligence and cognitive computing.

Brand #11:  Tencent, at $84.9 billion in value

You may or may not have heard of Tencent.

They are a Chinese company who specialize in value-added Internet, mobile, and telecom. 

They also do online advertising.

Their brand value increased 11% this year.

Brand #12:  Marlboro, at $84.1 billion in value

Yes, Marlboro. 

Besides the fact that they produce an arguably addictive commodity, their brand value nudged up 5% this year. 

In spite of this, the brand dropped two rankings since last year, falling out of the top ten.

Conclusion

While many of the inhabitants of the top twelve list are unsurprising once you consider their popularity, it is still fascinating to see which brands rank where and why. 

For the full top 100 list, see page 16 of BrandZ’s full report, which is available online.

One thing many of the top contenders seem to have in common is innovation, especially innovation of a sort that captures the public’s imagination.  Yes, they are large companies, but they are also trying new things, and piquing the interests of new consumers. 

Perhaps this is something that everyone, from the biggest corporation to the smallest start-up, can learn from.

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Your Guide to Retirement: FAQs About Bonds

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Your Guide to Retirement- FAQs About Bonds

Bonds are an important part of your retirement portfolio, and the closer you get to retirement, the more of them you should have. 

Nevertheless, beginning investors often have a number of questions about bonds. 

Here’s what you need to know.

If I Invest in a Bond, How Much Money Can I Make Off It?

That depends on the issuer and the bond’s maturity—that is, the length of time it lasts and pays you interest until the principal is returned to you.  Generally speaking, longer terms pay higher interest rates.

As far as issuers go, the less stable ones will generally offer a higher interest rate to you. 

This is to attract you as an investor, since you know there is a higher chance that this particular issuer will fail to make its bond payments. 

For the absolute safest bet, go with Treasury bills, which the United States government issues.

What Do the Returns Look Like Compared With Stock Returns?

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As you can see, stocks are the clear winner return-wise.

Why Then, are Bonds Considered Better for Retirement?

  • Bonds provide you with a stability that stocks cannot, so having at least some bonds in your portfolio cushions you against major stock losses.
  • Bonds provide regular income in the form of interest payments
  • Bonds are incredibly secure. U.S. Treasuries are second only to cash in liquidity and safety.
  • There are bonds which are non-taxable. While their yields tend to be lower, the lack of tax may cancel out this difference for individuals in higher tax brackets.

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How About the Risks?

Inflation poses a serious risk to bond holders. 

The cost of goods and services goes up over time—the payout from your bonds do not. 

Long-term bonds run a serious risk of not keeping up with inflation.

With all but the most stable bonds—U.S. treasuries—there is a risk that the issuer will default on its payments. 

This risk is particularly magnified with junk bonds, issued by borrowers with such a poor credit rating that it will be unsurprising if they fail to make payments to you at all.

Should you choose to sell your bond before its term is out, you should be aware that bond prices are subject to market pressures and rise and fall just as stock prices do.

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The above is a sample from Barclays Indices on the web, which gives information related to the latest movements in bond indices.

The price of bonds tends to have an inverse relationship to interest rates—when one goes up, the other goes down, and vice versa. 

If your bond has a very long term, and you wish to sell it early, there is a good chance it will not cost what it did when you bought it, which may or may not be a good thing for you.

I’ve heard of TIPS—What Are They?

  • TIPS stands for Treasury Inflation-Protected Securities
  • TIPS’ rate of interest is not as high as other Treasury bonds
  • However, the face value of TIPS is changed to keep up with the consumer price index.
  • Thus, inflation no longer poses a risk, as the face value and interest of your TIPS go up to match.

What Should I Put in my Retirement Portfolio?

You should diversify with bonds the same way you would diversify with stocks

A good spread would be amongst high-grade corporate bonds (avoid junk bonds) and Treasury bonds. 

If you are in a high tax bracket, you may also want to look into municipal bonds, as their interest is tax-free.

How Do I Buy Bonds?

You can choose to buy almost any kind of bond through a broker, same as stock, though the transaction costs may be a whole lot higher.

For TIPS or U.S. Treasuries, it’s better and cheaper to buy from the Feds, as no broker is necessary for this transaction. 

The federal government offers these at auction fairly regularly.

If you would like to look into the details, a good place to start is the TreasuryDirect Website, which among other things contains auction schedules like the example below:

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If you are a small investor, look into mutual funds for diversification purposes. 

Getting good diversification through individual bonds tends to cost $25,000 to $50,000, whereas bond funds will open you up to owning stakes in dozens of bonds for far less.

Which Should I Buy—Short-Term or Long-Term Bonds?

For a higher interest rate, go with longer-term bonds as opposed to shorter. 

An example is, the difference between 30-year Treasury bonds and five-year Treasury notes—the former pays at least a percentage point more in interest. 

The reason for this discrepancy is that the longer the life of the bond the greater the chance of erosion by inflation or interest rates.

For the majority of long-term investors, bonds that last from one to ten years are in a good sweet spot, as they have decent yields but less volatility than their longer or shorter-lived peers.

How Heavy Should My Portfolio Be In Bonds?

This depends on where you are in your life and career. 

As a younger, working individual, you should put more emphasis towards stocks for their higher returns. 

However, the older you get and the closer you are to retirement, the more you should move towards bonds for their stability and guaranteed income.

How Will My Bonds Be Taxed?

Some bonds generate taxable income. 

Corporate bonds, for instance, will always make taxable interest payments. 

Treasuries, however, only garner federal taxes while being exempt from local and state taxes.

Municipal funds are also free of federal taxes, and may be free of local and state taxes when bought in-state. 

Retirement accounts may also offer tax savings.

Conclusion

Bonds are an important tool to have in your retirement arsenal. 

They provide guaranteed income, and while they may not give as high a return as stocks, they are more stable. 

U.S. Treasuries are considered some of the safest investments that there are.

So, however far away from retirement you may be, it is a good idea to become more educated about bonds. 

The more you learn now, the more you will know what you are working with later.

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