Time to Pull the Trigger on This Gun Stock

by Sam Collins | December 14, 2012 1:59 am

Sturm, Ruger & Co. (NYSE:RGR[1]) — This firearms manufacturer has a dividend yield of 3.1% and steady earnings. The company attributes its success to an increase in the number of states with statutes allowing a “license to carry.” Additionally, demand has been driven by rumors that the federal government will take action to restrain gun ownership and restrict ammunition, and this caused a rush to buy earlier this year.

RGR paid an extra dividend of $4.50 to shareholders in December. The stock went ex-dividend on Dec. 5. When a large extra dividend is paid, a stock normally falls by the size of the dividend on the ex-dividend date, and on Dec. 5,  RGR  opened at $54.68, down $4.25. However, it closed that day at $52.52, down $6.21, a clear overreaction to the extra dividend payment.

Now at $47.73, the stock is clearly undervalued. Earnings strength, better-than-expected sales, and fundamental evaluation make RGR an excellent value. Technically, the stock fell to just below its 50-day moving average and has strong support at its bullish support line and 200-day moving average at $46.

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

  1. RGR: http://studio-5.financialcontent.com/investplace/quote?Symbol=RGR

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