Day 169: Used Car Bull
The Mother's Little Helper portfolio was up today +$6,961.10 (+0.96%).
Overall GAIN YTD: +$145,110.27 (+24.85%)
According to CNN Money our benchmark index, the S&P 500 is up +9.00% Year To Date (http://money.cnn.com/data/markets/sandp/).
One of my conviction buys back in December 2016 was Copart Incorporated. Copart, Inc., was founded in 1982 by Willis J. Johnson and began as a single salvage yard in California. Now headquartered in Dallas, Texas, Copart is a global leader in online vehicle auctions, and a premier destination for the resale and re-marketing of vehicles. Copart’s innovative technology and online auction platform links buyers and sellers around the world. Copart currently operates more than 190 locations in 11 countries, and has over 125,000 vehicles up for auction every day. Copart makes it easy for Members to find, bid and win the vehicles that they are looking for. Members can choose from classics, early and late model cars and trucks, industrial vehicles and more. Copart has more than 8,000 acres of land to house their extensive inventory, and they sell over two million vehicles globally each year. Copart has something for everyone: dismantlers, body shops, salvage buyers, dealers and individual consumers. Copart has been a publicly traded company since 1994 (NASDAQ: “CPRT”). Copart’s success has earned us a place on Forbes “200 Best Small Companies” list nine years in a row as well as being featured on the television show, World’s Best as “The World’s Best Remarketing Company.”
Looking at the sea of used cars across the country one would think I had lost control of my faculties thinking there was money to be made in used cars. Actually I'm a full on bull in this sector.
My original thesis on Copart was that it would be a hedge against the bull market 'good economy' with low interest rates. If the economy tanked and rates remained low, people would buy more used cars and used car parts. My thesis turned out to be right for the wrong reasons and the choice of Copart as a winning play worked out any way; Copart is the #1 stock in our portfolio with a YTD return of over 126%.
So what's up with used cars. Turns out there are a lot of people out there buying used cars with sub-prime loans. If you have great credit you have no problem buying a new car, but for the millions of Americans with lower scores, a used car with high rates of interest is what's available and the dealerships are eager to make those loans! Since 2012 used car sales are quickly approaching an all time high. In Q1 2017, the average age of traded-in vehicles was 6.4 years old, essentially flat from last year, but the percent of buyers willing to part with their existing vehicle is down from 45.0% last year to 42.8%. With a forecast for fewer sales, this further constrains the availability of older vehicles and pushes prices up.
In Q1 2017, some long-anticipated trends took hold in the used market. New-vehicle sales are expected to slide, and coupled with the reduction of vehicles being traded in, will further restrict the share of older used vehicles, which are already surging in demand. While older used vehicles are poised for higher prices due to the supply shortage, lease returns will continue to hit the used market at elevated levels for the next two years, further reducing the values of near-new vehicles as we saw at the start of 2017.
Disclosure: I am personally invested long in these stocks that appear in the MLH portfolio and may purchase or sell share withing the next 72 hours. I am also invested in other stocks that do not appear in the MLH portfolio: BA, BRK.B, CELG, CSCO, CTXS, CVX, DOW, DVAX, FB, IBM, NTES, NVDA, OMER, PFE, PG, RDHL, SCHW, THO, TWX, VEEV, VZ, XLNX, XOM
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation.