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Duarte added: General Motors (NYSE: GM | Quote | Chart | News | PowerRating) and the rest of Detroit's automobile industry reported dismal sales for the month of December, but Autonation has been quietly moving higher over the last few months. The latter owns 264 dealerships, 73 of them selling GM cars. Yet, its dealerships are diversified including shops that sell imports, such as Toyota, Acura, Land Rover, Lexus and BMW, as well as having a significant presence in used cars, especially the popular used luxury cars.
Still, business has been anything but good lately, with Auto Nation recording huge losses in November, and expecting a grim 2009, unless credit conditions improve, which means that the company is not immune.
So, why are the shares rising? Well, for one thing, Detroit is unleashing its latest round incentives, including 0% financing by GMAC (backed by the TARP funded government loans), as well as the usual tricks, such as rebates, discounts and so on. But here's the rub. We've heard unconfirmed reports that dealers that have been offering rebates are not getting reimbursed for them by the car manufacturers, which is one of the contributing factors in the rise of automobile dealer failures of late, as dealers have reportedly been selling cars for losses.
But after it's all said and done, the key to Autonation's success is the fact that it's the biggest of them all, and that it sells anything from Chevys to Bentleys, new and used, and has the ability to maneuver on price due to volume and scale. In other words, where business is bleak for a small shop that owns one lot, Autonation has 263 lots spread accross the U.S., and spread accross the entire demographic spectrum. In other words, in this case, size seems to matter, and the stock is rising on the expectation that when this is all said and done, there will be an Autonation in some shape or form still standing.
The stock is nearing its 200-day moving average, just below $12, having risen from 4 in mid-October, which means that as the car industry has imploded, Autonation has nearly tripled in value. This huge move suggests that as the shares near $12, we should see some profit taking. If we see a surge, though, it would be a sign of significant strength in the stock.
Duarte's conclusion: If you've missed the move so far, this is no time to chase the stock. Yet, if it climbs above 12 in brisk volume, especially if there is no news, it would be a sign that higher prices are likely for the shares.
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Duarte partners with the Investors Resource Center at Investrend Information (http://www.investrendinformation.com).
Duarte's IntelligentForecasts.com (http://www.intelligentforecasts.com) provides free news coverage and analysis, and his daily articles and news summaries offer recommendations and analysis for ETFs, and individual stocks in the technology, health and biotechnology, and energy sectors. Duarte has combined expertise in health care, energy, and the effects of politics and global intelligence on the financial markets offer a unique blend of insight and information to thousands of active investors and political and intelligence aficionados around the world on a daily basis.
He is the author of: Futures And Options For Dummies, Successful Energy Sector Investing, Successful Biotech Investing and co-author of After-Hours Trading Made Easy. In early 2001, in Successful Energy Sector Investing, he correctly predicted that Venezuela's political problems could lead to an energy crisis in the United States. He has also appeared as a weekly guest on Market Mavens Radio and has logged appearances on KNX radio in Los Angeles, Financial Sense.com radio, and Wall Street Radio.
One of CNBC's original Market Mavens, Dr. Duarte has been writing about the financial markets since 1990. His articles and commentary have been featured on CBS Marketwatch, Barron's, Smart Money, Medical Economics, and in Technical Analysis of Stocks and Commodities magazines. In 2003, Doctor Duarte received second place, in the professional section, of the Medical Economics Investment Challenge with a 12-month return of 42%.
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