AutoNation (AN): Could be a new leader

By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 4/7/14 Sign up for Cabot Wealth Advisory—it’s free!

The market is definitely in a transition phase now. The indexes remain strong, especially the Dow and S&P, but the Nasdaq is suffering, and worst-hit of all have been the hot growth stock that led the way over the past nine months and more.

The best explanation for this shift is the simplest; those stocks got overvalued and now it’s time for them to rest.

But the psychological argument is important, too. Those stocks became too popular (AWAY, NFLX and TSLA are prime examples) and they now need time to cool off, to get out of the limelight.

So now it’s time for some new leaders, and one of them might be AutoNation (AN).

AutoNation is the largest automobile dealer in the U.S., and its roots are interesting.

Its founder, H. Wayne Huizenga, first built Waste Management into the largest trash-hauler in the U.S.

He then grew Blockbuster Video into the largest movie rental chain in the U.S.

And then he built AutoNation, which is now the largest car dealer in the U.S. With 267 dealerships selling cars in 15 states, the company sold its nine millionth vehicle last year. (Note: Wayne stepped down from management a decade ago.)

Today, AutoNation gets 55% of its revenues from new cars, 24% from used cars, and the remainder from parts, service, financing and insurance.

And growth trends are good!

In 2013, revenues hit $17.5 billion, up 12% from the year before, while earnings hit $2.98 per share, up 17%. For 2014, analysts are expecting earnings growth of 14%, but I think that’s conservative.

And there’s the chart.

While AN has been in a gentle uptrend for years, it’s actually been underperforming the broad market since August 2011, nearly three years, even though growth has consistently been over 10%. This has made the stock a better value.

And now the stock has broken out to new highs, sparked by the news that auto sales in March were superb. After the long cold winter, people are itching to buy—and they’re feeling a little more prosperous, too.

To me, this strength (combined with the market’s change of focus) is a signal that AN might be one of the market’s new leaders.

So, you could jump on board here, using proven risk management tools to get out with minimal loss if I’m wrong.

But even wiser would be to take a trial subscription to Cabot Top Ten Trader, which provides readers with detailed recommendation of 10 top stocks every Monday, and tells them to take profits when it’s time, too.

In fact, Chief Analyst Mike Cintolo recommended one specific automaker’s stock in last Monday’s issue, and that stock has even more potential than AutoNation! Click here for details.

Company Details

AutoNation (AN)
200 SW 1st Avenue
Fort Lauderdale, Florida 33301
Index Membership: N/A
Sector: Services
Industry: Auto Dealerships
Full Time Employees: 22,000