A monster month for used car sales

Used car sales shot up in July to the highest level since July 2005

Seth Perlman / AP / File
Used cars are advertised for sale along the road leading up to the Pike County Chrysler Center in Barry, Ill., in this May 2009 file photo. Used car sales in July 2011 were extraordinarily high.

File this under: New Normal, The

Used car sales exploded in July, up 13.5% year-over-year - the best July since 2005.

In a time of persistently high unemployment, low consumer confidence and tight lending, this trade has been a no-brainer. Below is a research note my firm put out on the sector last week. Based on our quantitative work, this is and has been one of the best-looking sub sectors in the market for awhile now, see my firm's PM Kevin Lane's commentary below:

Very rarely does something bubble up to the surface and grab your attention as plain as the nose on your face. However when I was reviewing our daily short squeeze list it was impossible not to notice that the first three issues on the list were all auto dealerships - Group 1 Automotive (GPI), Penske Auto Group (PAG) and Asbury Automotive Group (ABG). All three handily bested earnings estimates and reported unusually strong results. A common theme across all three reports was strong used car sales, which makes a lot of sense given the current economic climate.

FusionIQ Ranks for GPI, PAG and ABG:

Penske Automotive Group ($PAG): Combined Master IQ Rank - 91 out of 100

Asbury Motor Group ($ABG): Combined Master IQ Rank - 90 out of 100

• Group 1 Automotive ($GPI): Combined Master IQ Rank - 82 out of 100

All three may have to consolidate gains or pullback a bit to work off short term oversold conditions after yesterday’s price spike, however given the robust quarter we would suggest shares may not pull back to much. Group 1 Automotive (GPI) is our favorite technical set up in the group.

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