Profiting from the Automobile Recovery — And a New Option Recommendation

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Global stock markets bounced across the board last week, as the Dow Jones rose 0.76% and the S&P 500 recovered 1.34%.

Most notably, emerging markets rebounded strongly, with the MCSI Emerging Markets Index soaring 5.14%.

Big gainers in your Bull Market Alert portfolio included Bank of Ireland (IRE), up 5.85%; biotech bet Celgene (CELG), rising 4.99%; and Google (GOOG), which rallied 3.86%.

With Gentherm Incorporated (THRM) finding a bottom, this is also a good time to place on option bet on this stock’s rebound. So buy the December $17.50 call options (THRM131221C00017500) today.

This week’s Bull Market Alert recommendation is a bet on the recovering U.S. car market through the country’s largest automobile dealer, AutoNation (AN).

This Ft. Lauderdale, Fla., 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).

This past Thursday, AutoNation (AN) 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.

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With the average age of a car on U.S. roads at about 11.5 years, there is massive pent-up demand from U.S 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 (P/E) 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 (AN) today and place your stop at $44.50. With the stock up 5.41% last week, let’s hold off on the options for now.

Portfolio Update

Bank of Ireland (IRE) gained 5.85% last week, completely erasing the 5.83% pullback the week prior. IRE also managed to rise up and touch its $12.50 resistance level and 52-week high — in just two weeks. IRE’s shares continue to trade below book value, giving its share price room to move higher. IRE remains a BUY.

WellPoint, Inc. (WLP) added 2.53%. WLP made gains over the holiday-shortened week after touching its 50-day moving average last week. WellPoint’s senior management will make a webcast presentation from the Morgan Stanley 2013 Healthcare Conference on Tuesday, Sept. 10, which you can listen to on www.wellpoint.com. WLP is a BUY.

Celgene Corporation (CELG) added another 4.99%. CELG continued to be a powerhouse in your portfolio last week, marking its fourth week of gains since touching its 50-day moving average. And the news keeps getting better. Last Friday, the Food and Drug Administration (FDA) announced approval of Celgene’s drug Abraxane, a chemotherapy drug for fighting late-state pancreatic cancer. This is an important step for patients as pancreatic cancer is infamously hard to treat, has a low survivability rate and Abraxane is the first new treatment approved in the past eight years. CELG should be able to break the $150 barrier and move higher. CELG is a BUY.

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Gentherm (THRM) gained 1.91% over the past four trading days. THRM continued to build a healthy base on sideways consolidation trading last week. Gentherm announced a new product offering recently, extending its automotive seat-heating technology to include seat and door armrests. Gentherm’s technology and products are currently in use, as original manufacturer equipment on over 8 million vehicles. THRM remains a HOLD.

Google Inc. (GOOG) rose 3.86%. Google has a light-hearted history of naming its sequentially-lettered Android operating systems (OS) after desserts, such as “Ice Cream Sandwich” (for “I”) and “Jellybean” (for “J”). In usual form, Google announced that the latest “K” iteration of its Android OS would be named “Kit Kat.” And, using this popular brand name means that this iteration is not all fun and games. Being the brand name of one of Hershey’s most popular candy bars brings some intense brand-recognition to Google’s latest Android OS and devices. No money will change hands between the two companies, as the agreement to use the brand in advertising and promotions will be mutually beneficial to both companies. It is sweet when a plan comes together. GOOG is a BUY.

Priceline.com Incorporated (PCLN) added 2.20% last week. Standard & Poor’s Rating Services raised its outlook on PCLN from “Stable” to “Positive” last Friday and reaffirmed its “triple-B” credit rating — two steps into the “investment grade” classification. Based on both strong fundamentals and an excellent technical chart, PCLN seems primed to move higher. PCLN is a BUY.

Latest Special Reports

As a courtesy, I want to bring to your attention my latest special report, the newly updated version of The Top 12 Stocks You Should Buy Right Now, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle.

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In addition, take a look at Hedge Fund Secrets Revealed: A Simple Four-Step Technique to Manage Your Money like a Hedge Fund. This FREE report gives you the four-step process to maximize your profits just like the best investment pros do. Both of these special reports are accessible FREE on my website.

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In the next week, investors will be watching Apple, Inc., closely to see if a couple of well-orchestrated events can push shares back above the $500 mark.

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