Americans are putting the pedal to the metal this summer, and auto retail stocks are taking off.
CarMax, Autonation, AutoZone and O’Reilly have surged at least 40% over the past three months, while car rental company Avis has rocketed 130% over the same stretch.
Avis was also upgraded at Morgan Stanley to overweight with a price target that implies 43% upside.
“I look at this upgrade on Avis … and I think a couple observations. The stock is up 235% off of the lows. And from a technical perspective, you’re coming right up into this downtrend resistance line,” Craig Johnson, chief market technician at Piper Sandler, told CNBC’s “Trading Nation” on Thursday. “I’d rather be fading this upgrade than buying it at this point.”
Avis has rallied more than 300% off March lows.
“On a positive note, take a look at O’Reilly. This is a chart at this point in time which is up about 65% off the lows. You got about another 5% to go to get to that kind of major overhead resistance level around $450. My perspective, I’d buy a breakout above that, and I’d buy O’Reilly before I’d be buying Avis,” said Johnson.
O’Reilly is up 28% in the past three months, rallying past the 18% run on the S&P 500.
Nancy Tengler, chief investment officer for Laffer Tengler Investments, agrees on the bullish case for O’Reilly.
“This is a company that its merchandise margins are greater than 50%. They actually grew sales in the March quarter year over year by about 2% and the free cash flow yield is 5%. It’s fundamentally a much stronger story,” Tengler said during the same segment.
Like Johnson, Tengler also sees the Avis rally as too hot, and vulnerable to some weakness.
“I think that Avis play is done, or even if you make some money from here, it’s going to be a riskier trade from this level. So we like O’Reilly, and I think it should be given a second look even after appreciating off the lows,” she said.