“Unsold” Cars and Fun With Stock Screens

Gloom-and-doom sentiment abounds on the internet. You can stumble across it with not even a diligent search.  A click here and there, and eventual perambulations resulted in a look-see at this alarming article from ZeroHedge:

Where the World’s Unsold Cars Go To Die

unsold cars

Lots and lots of photos, mostly of staging areas at ports around the world, including Baltimore USA and Civitavecchia in Italy, some taken through Google Earth, some from regular stock photos.

unsold cars go to die

The basic premise of the “article”[1] is that since there are untold thousands (hundreds, even!) of parked cars in these areas, that new cars aren’t selling well or fast enough.  *NO ONE* is buying new cars.  New cars are beyond the reach of the SHRINKING middle class.  Regular folks are holding on to their clunkers longer and longer.  Ergo ipso facto and hocus pocus bunkum possum, we are all still in the iron grips of a global RECESSION.

It’s All In The Spin

Sounds like one of those History Channel mockumentaries on space aliens.  “COULD IT BE, that unknown visitors to this planet painted these intricate carvings of awesome ziggurats in these caves high atop the bleak Andean plateau, where no one in their right mind would travel except of course if they’re on an expense account filming a questionable documentary on space aliens?  Could it be?”

COULD IT BE, that true auto manufacturers be cranking out production only to drive up inventory?  Should it indeed be so, then it follows that auto manufacturers would be in dire financial straits.  Carrying unsold inventory is indeed expensive.

Except that they’re not:

Screen Shot 2014-05-18 at 9.10.58 AM

Ford, Daimler, Nissan, Toyota, Volkswagen and even Government General Motors are showing positive, albeit single-digit net profit margins.  Lone laggard Navistar is sucking hind teat on margin, but that’s about it.

What about auto retailers?  Someone’s got to bear the costs of untold millions (thousands, even!) of unsold inventory.  Well, turns out they’re OK too, sort of:

Screen Shot 2014-05-18 at 9.32.29 AM

AutoNation, Penske and Carmax with the same single-digit net margins. A high-profit business, auto retailing is not.

Keep that BS Filter set on “High”

Take another look at the second photograph.  Now run a Google search for “parking lots cars ports”, switch to Images, and this pops up, about halfway down the results:


( all photo credit due to mighty Bloomberg )

( all photo credit due to mighty Bloomberg )


The news from late 2013?

European Car Sales Rise Second Straight Month on Spain Surge

Catch that, car sales RISE? It’s all in how you spin it, I suppose.

Chasing Rabbits

Fact-checking ZeroHedge “articles” may be fun and a fine match for that second cup of coffee early on a Sunday morning, but there are more profitable pursuits.  Such as, wondering why Google Finance randomly groups Copart along with Penske and AutoNation on its results screen.   Copart (NASDAQ: CPRT) is a $4-billion-cap-plus going concern, sports a operating margin well over 20% and a net margin of almost 16%, about as tasty as my one of my favorite holdings, Sturm RugerCPRT blends with a group of auto retailers about as well as an NBA player at a little person convention.  What is it that they do?  Take it away, Reuters company capsule:

Copart, Inc. (Copart), incorporated in 1982, is a provider of online auctions and vehicle remarketing services in the United States, Canada and the United Kingdom. The Company provides vehicle sellers with a range of services to process and sells vehicles over the Internet through its Virtual Bidding Second Generation (VB2) Internet auction-style sales technology. Vehicle sellers consist primarily of insurance companies, but also include banks and financial institutions, charities, car dealerships, fleet operators and vehicle rental companies. Copart then sells the vehicles to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers and exporters and, at certain locations, to the general publi ZZZZZzzzzzz…..

OK, so CPRT is a middleman to insurance companies in the automobile re-sale and salvage market.   Along with a broker business model, comes the ability to churn profits on vehicular assets without actually holding the pink slip.  No inventory to speak of, delivering a return on a average of equity (ROE) of 21.36% and return on assets (ROA) of 12.83%. Tasty.

On the slightly downward side, carrying little or no inventory also makes for a high price to book value (5.21) and a high Price to Sales (4.15), which might screen out CPRT to screens filtering out for those high P/B and P/S values.

... wouldn't mind finding this at a country auction...

… wouldn’t mind finding this at a country auction…

Why such high margins? CPRT’s nearest publicly-traded competitor, KAR Auction Services (NYSE: KAR), sports no such numbers: a skimpy net profit margin of 3.55%, an ROA of 1.60% and ROE of 5.6%. Hardly an inducement to go out a plunk down a chunk of change on a block of stock.

“Virtual Bidding Second Generation (VB2) Internet auction-style sales technology”, as they say. Technology? Hardly. CPRT’s website appears clunky and a bit 1990’s-ish, but it probably doesn’t have to be all that fancy.

That’s all they are, is an auction service, albeit a nicely profitable one.  Readers of the The Millionaire Next Door
book will remember that auctioneers are one of the more common stealth millionaires.  Connect buyers and sellers, and skim the cream off the top.
So what’s the takeaway from all this, and why the “fun with stock screens” in the post title?

Just this. When investing in individual securities (much as this is a no-no in personal finance circles, just stick with vanilla index funds and ETFs, because you don’t know what you’re doing and can’t beat the market, you little cupcake), profitability is as good as measure of success and starting point as any. It may pay to head on over to Google Finance stock screen page, enter a respectable profitability criteria, say anywhere from 10 to 20 percent net, and start YODD, your own due diligence from there.

And, mental note to stay away from ZeroHedge, at least for a while.
Thanks for dropping by and reading along a bit. Next week or month, that long awaited-post on investing in the new robotics revolution. Promise. Until then, the usual supplication to subscribe: Email and/or Twitter .
[1] Calling it an “article” only in the loosest sense of the word. It’s a re-post of a contributor website.

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