Smith & Wesson (NYSE:SWHC) shares fell 28% today hitting a new 52-week low after the company announced that its gun inventories were building up substantially as lower retail traffic caused a slow-down beginning in October. Many are attributing this slow-down to a drop in the U.S. crime rate, which fell as a percentage of the population from 2001 to 2006. Shareholders are clearly concerned that such trends may hurt the business in the future.

Smith & Wesson reported net product sales of $70.8 million for the quarter - an increase of 39.4% over the comparable quarter last year. Meanwhile, net income came in at $2.9 million, or $0.07 per share, which was $87,000 higher than the comparable quarter last year. The stock dropped on troubling comments that several manufacturers were forced to lower their prices on both long guns and hand guns in response as competition grows more fierce.

In the end, this is bad news for Smith & Wesson as well as other gun manufacturers that rely on a combination of hunting, protection and crime to drive their earnings growth. Combined, these factors make SWHC a stock worth watching!

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Sturm, Ruger & Company (RGR)
The Eastern Company (EML)

Axcan Pharma Inc. (NDAQ:AXCA) shares rose marginally today after 9.95% holder Pennant Capital Management said they were disappointed with the $23.35 per share buyout price by TPG Capital. Shareholders remain divided on the issue, however, given the fact that the M&A market has suffered a dramatic setback since the credit crunch, which has lowered valuations across the board.

"While we support selling the Company, we believe the valuation indicated is inadequate considering the strong cash flows of the business coupled with significant net cash on the balance sheet," said Alan Fournier, managing partner of Pennant. "We believe the company is worth at least $25 per share using a relatively conservative 8x EBITDA multiple which still results in a high single digit FCF yield."

Pennant also questioned the timing of the deal, pointing out that it was announced concurrently with very strong revenue and earnings report that, couple with guidance, likely would have driven a recovery in the stock price. The speculation is that the deal was announced so that the premium looked much more substantial than it would have reacted had they waited until after the earnings report.

In the end, Axcan is a great company that recently reported strong results. The buyout offer may be ill-timed and inadequate, but it does represent something that the company should carefully evaluate. The board should also work to disclose the details of the process and evaluation to allow shareholders to assess the fairness of the transaction. Combined, these factors make AXCA a stock worth watching!

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In a report today, the Mortgage Bankers Association said that delinquencies rose to over 5.5%, making them the highest they have been since 1986. Delinquencies, defined as being more than 30 days behind on mortgage payments, are seen as spelling future trouble for the housing market as many delinquencies turn into foreclosures, and an increase in foreclosures would further depress an already tough market for sellers.

Despite this news, the most prominent mortgage lender is up over 10% on the day. Countrywide Financial Corp. (NYSE: CFC), with a market capitalization of over $6 billion despite losing more than 80% of its value this year, is seen as being a major beneficiary of the recently announced federal plan to freeze the interest rates on some subprime mortgages as well as allow local governments to fund refinancing through tax-exempt bonds.

Both of these announcements are good news for Countrywide because it not only has significant mortgage portfolio holdings, which desperately need strengthening in the wake of rising foreclosures, but is also the major player in the mortgage origination industry and will greatly benefit from an increase in perceived housing market strength.

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Principal Financial Group (PFG)
Nationwide Financial Services (NFS)