Sturm, Ruger & Co. (NYSE:RGR) — The Trade of the Day recommended buying this firearms manufacturer twice last year, but on April 4, we recommended caution after the stock popped above $53. RGR pulled back to $46.20 but then reversed, jumping to a new high at $58 on Monday.
Earnings have grown from $1.42 in 2009 to $1.46 in 2010 and $2.08 in 2011. The company has topped earnings estimates for 12 of the past 13 quarters, and has a dividend yield of 1.03%.
It attributes its success to an increase in the number of states with statutes allowing a “license to carry.” Additionally, demand has been driven by the expectation that the federal government will take action to restrain gun ownership, and this has caused a rush to buy.
Technically the stock has advanced with a series of “step-ups,” which are characteristic of bull market trends. But the recent jump to $58 resulted in a reversal from our in-house Collins-Bollinger Reversal (CBR) indicator, and so we now expect a pullback to the 50-day moving average at $47. This is supported by a sell signal from the stochastic.
Those who are longer-term investors should protect their position by writing calls or buying puts. Traders should nail down profits now. But RGR is a stock that we want to buy again and the price we are shooting for is $48.