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Time to Unload Firearm Stock?

Sturm, Ruger & Co. has gained almost 80% since our initial recommendation


Sturm, Ruger & Co. (NYSE:RGR) — The Trade of the Day first recommended RGR on Oct. 11, at about $29. Since then, this U.S. firearms manufacturer has been able to avoid market slumps and has vaulted to a gain of almost 80%.

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 11 of the past 12 quarters and has a dividend yield of 1.21%.

RGR 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, resulting in a rush to buy.

Technically the stock has advanced with a series of “step-ups,” which are characteristic of bull market trends. But recently RGR jumped on a “continuation gap,” which accelerated the trend and moved it away from its 50-day moving average — a jump that makes it susceptible to profit-taking.

Longer-term investors should protect their position by writing calls or buying puts. Traders should use further strength to nail down a profit.

Trade of the Day – Sturm, Ruger and Co. (NYSE:RGR)
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Trade of the Day Chart Key

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