A Stock to Ride the Rally

04/20/2009 1:00 pm EST

Focus: STOCKS

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

Louis Navellier, editor of Blue Chip Growth, says a new bull market is beginning, and he likes one retailer he thinks will continue to rally.

After enjoying the recent rally, many investors are now asking themselves whether this is the start of a new bull market or if we're in the middle of another bear trap. So, let me answer that question for you: A new bull market is starting before our eyes.

But while signs of recovery are clear, the new bull market is going to emerge gradually over the next several months. There is still a tremendous amount of cash on the sidelines—to the tune of about $4 trillion—and that money will come rushing back over the next few months.

We have yet to see the spark that will trigger an explosion of buying on Wall Street. But there are three key events that will each lend stability to stocks—as well as the broader economy:

  • Wall Street's reaction to quarterly earnings
  • Increased consumer spending due to inflation
  • Treasury Secretary Tim Geithner's public/private plan to relieve the credit crisis

I am very optimistic about each of these indicators and expect to see them boost the market in the coming weeks. Collectively, these events will provide clear evidence that the worst of this recession is behind us.

AutoZone (NYSE: AZO) operates approximately 4,100 stores in the US and Puerto Rico, and is clearly the number-one auto parts chain. As auto sales have plummeted dramatically, more people are relying on aging vehicles to get around. The result is a huge increase in demand for parts and maintenance—and huge sales for AutoZone!

In its latest quarter, the company's earnings rose 21.6% to $115.9 million or $2.03 per share, compared with $106.7 million or $1.67 per share in the same quarter in 2008. Growing year-over-year earnings in this dismal environment is a tremendous feat. During the same period, AutoZone's sales rose 8.2% to $1.45 billion compared with $1.34 billion. 

The analyst community expected earnings of $1.85 per share and $1.38 billion in sales, so the company posted a 9.7% earnings surprise and a 5.1% sales surprise. In the past three months, the analyst community has revised [its] consensus earnings estimate 9.5% higher, which is a good omen, since typically positive analyst earnings revisions precede earnings surprises. 

What's more, the company is poised to pick up a huge chunk of market share if Chrysler or General Motors (NYSE: GM) need some type of bankruptcy reorganization. Since the dealer networks and parts businesses of these companies will likely suffer during the process, AZO will quickly fill the void. Due to robust profit margin expansion, I expect AutoZone's earnings growth will continue to utpace its already impressive sales growth and create big profits for stockholders in 2009. (The stock closed above $166 Friday, near its 52-week high—Editor.)

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