AutoNation: Driving Profits

09/17/2013 7:00 am EST


Nicholas Vardy

Editor, Oxford Wealth Accelerator

Our latest featured recommendation is a bet on the recovering US car market through the country's largest automobile dealer, says Nicholas Vardy, editor of Bull Market Alert.

AutoNation (AN), a Fort Lauderdale, Florida company, owns 267 franchises in 15 states in the South and West.

Its business is divided almost equally between the domestic auto makers (GM, Ford, and Chrysler), mainstream import brands (Toyota, Honda, Nissan, and Hyundai) and premium/luxury car makers (BMW, Mercedes-Benz, and Lexus).

The company just reported that its new-vehicle sales rose 32% in August to 30,582 cars and trucks. That's selling 1,000 cars a day, every day, for the whole month.

Importantly, because AutoNation only sells cars to individual buyers and not to fleets like rental-car companies, its sales total reflects robust consumer demand.

AutoNation's rip-roaring sales growth numbers are part of a national trend. Auto dealerships across the land are booming, as more consumers take the plunge and buy a new car.

Sales of new cars rose 17% in August, hitting an annualized rate of 16.09 million. While still below the peak of 16.6 million units a year sold a decade ago, August marked the fastest pace since December, 2007.

With the average age of a car on US roads at about 11.5 years, there is massive pent-up demand from US consumers.

And thanks to easing financing requirements, more consumers can borrow money to buy cars than during the midst of the financial crisis when a lot of lower-credit customers got squeezed out of the market.

Although it has several competitors, I particularly like AutoNation, as its growth rate is nearly double that of the overall market.

And trading at a forward price-to-earnings ratio of 14.75, it is also much cheaper than rival CarMax (KMX). And technically, the stock is on the verge of breaking out to a new high. So buy AutoNation and place your stop at $44.50.

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