The Second Amendment Trade: Double-Digit Profits by Easter
By Jeff Clark
February 12 , 2008

In 1975, Washington, D.C., outlawed the sale of handguns.

In 1976, Washington, D.C., became the "homicide capital" of the United States.

The National Rifle Association (NRA) argues there's a direct correlation between banning handgun sales and an increased homicide rate. Antigun advocates argue the murder rate would be even higher if the ban did not exist.

This year, on March 19, the Supreme Court will hear both arguments... and its decision will be a windfall for Smith & Wesson shareholders.

Let me explain...

Smith & Wesson Holdings Corporation (SWHC) is the largest manufacturer of handguns in the United States. As you can tell from the following chart, it hasn't been a really good business lately...

But no matter what the Supreme Court decides, gun sales should increase and SWHC shares should pop higher.

You see, if the Supreme Court decides that Washington, D.C.'s handgun ban is unconstitutional, then it will eliminate the ability of states to pass antigun legislation. That's a long-term bullish development for SWHC.

And if the Supreme Court decides that states can legally ban handgun sales, then it will spark a rush to buy handguns before states impose such legislation.

That's bullish for SWHC in the short term.

Either way, it works out well for Smith & Wesson shareholders.

At the current price of $4.70, SWHC trades at about 14 times earnings. That's not the cheapest it's ever been, but the stock is sitting at a fresh 52-week low.

And if you asked me if it looked like a good stock to buy ahead of the March 19 court date, I'd have to say, "It's worth a shot."

Best regards and good trading,

Jeff Clark