Well, is there any stock working out there? Here's one that isn't doing too badly. In fact, it's closer to a 52-week high than a 52-week low (and that's saying something). I'm talking about AutoZone (NYSE: AZO). It's actually up at the time of this writing by almost 8% on second-quarter earnings.
Sales increased 8%, and the bottom line expanded over 20% to $2.03 per share. What was the call? According to this source, $1.84 per share was the expected number. Great job, AutoZone. Now, the thesis here isn't too difficult to divine. No one wants to buy a new car from General Motors (NYSE: GM) or Ford (NYSE: F). Not only is a recession happening, but some consumers are probably scared to make a major purchase from companies that are doing so poorly. Ergo, car maintenance is all the rage. AutoZone repurchased stock during the quarter and kept its gross margin relatively stable. Domestic comps revved higher by 6%. Those are positive points.
But, would I buy AutoZone? Absolutely not today! I would not even remotely consider the stock until it pulls back. But let's say I do get that pullback. Okay, it's down $20 say from where it is today: do I buy then? I'm bearish on most individual stocks. I'll give the AutoZone bulls that the shares have held their price a lot better than other stocks that have been simply hammered to a bloody pulp. And I concede that the story is a good one. Seriously, it makes sense to think that the stock will rally from a pullback given the disastrous decline in auto sales. However, this recession can knock any strong stock down in the proverbial heartbeat. If you must buy AutoZone, have an exit strategy in case things go awry. Use a tight stop. In the end, though, I'd probably wait for more data to come along on how the company is doing before buying on any pullback. It's a shame, but get used to this kind of thinking. Even when a story seems good, you've got to remember that investors have been burned by so many trades lately that they can pull their money out of any issue at any time.
Disclosure: I don't own any company mentioned; positions can change at any time.
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Reader Comments (Page 1 of 1)
3-10-2009 @ 10:46PM
Kevin said...
As fewer new cars are bought auto repair could remain strong for years to come. Of course depending on how long the recession lasts if fewer miles are driven cars won't wear out quite as fast either.
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