CarMax & AutoNation Enter Hall of Shame (AN, KMX)

After perusing the daily 52-week lows, there were two names that make perfect sense on the list if the consumer is slowing and if auto sales (new and used) are heading south: CarMax (NYSE:KMX) and AutoNation (NYSE:AN). 

Just last week CarMax came clean and lowered its prior guidance of $1.03 to $1.14 EPS down to a newer $0.92 to $0.98 EPS.  Its shares got hit last week on this by well over 10%, and shares are lower again today by more than 2%.  Shares are at $20.39, but this is above the lows of the day and slightly back above the $20.33 52-week lows.

AutoNation’s CEO said at the end of August that the FOMC would need to cut rates multiple times to save the economy, and a couple weeks before that in mid-August Goldman Sachs cut its rating from an already unpleasant "Neutral" to an outright dreaded "Sell" rating as it believed an earnings miss was possible.  AutoNation shares are down almost 3% at $17.10 today, and that is under the $17.42 prior 52-week low.

But here are the issues running oil alone:

• Oil is down back under $80.00 per barrel, but it isn’t good enough to help autos.
• T. Boone Pickens still bullish and calling for a pullback to $78.00 or so, it’s probably too hard to get outright hopeful that gasoline prices are going to drop enough that it will really help the auto sector. 
• Hopefully our $200 oil scenario won’t come to pass.
• Goldman Sachs has recently lifted its "Super-Spike" band to $135 per barrel.

You’d think at some point this gets adequately factored into the market.  But that is the efficient market theory, and everyone knows by now with homebuilders on the 52-week lows day in and day out that markets don’t know how to be efficient.

Many people don’t like George Soros anymore, but he has one great statement that has been far easier to prove than to disprove: "Contrary to the tenets of market fundamentalism, financial markets do not tend towards equilibrium; they are crisis prone."

Jon C. Ogg
September 25, 2007