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Dying Detroit: How to Profit From It

General Motors and Chrysler’s dealership closings are bad for workers but great for the competition. There is now a good chance that drivers, with fewer company-sponsored outlets to service their cars, will choose a local repair shop rather than travel to a more distant dealership. Cramer likes Monro Muffler Brake as a play on the trend.

Monro is up $6.32, or 31%, to $26.64 since Cramer recommended the stock back on Aug. 19, 2008. The company has a strong presence in about 37% of Chrysler’s announced dealership closings, particularly the Northeast. While the locations of GM’s closings are still unknown, there is at least the chance for a similar opportunity.

Also, a little forethought has paid off for Monro: Aggressive advertising and promotion may limit next quarter’s earnings power, but they have come at the perfect time to take market share from Detroit.

Monro’s success isn’t dependent on GM and Chrysler’s failures, though. In late March, the company upped its fiscal fourth-quarter and 2009 guidance, with same-store sales expected to jump 10% – a nice increase over the original 4% to 7% prediction – and earnings estimates bumped to a higher range, $1.17 to $1.20 a share from $1.14 to $1.19 a share. Plus, costs are down big from last year. That, too, should boost the margins.

Beyond repair shops, investors can play the dealership closings through parts makers as well. Cramer’s favorite is O’Reilly Automotive right now because it has the best chance of increasing its profits. The company is still integrating its purchase of CSK, giving it an easy way to widening the margins.

AutoZone and Advance Auto Parts should see some benefits as well, but neither company is as well positioned as O’Reilly, Cramer said. While O’Reilly may trade at a higher multiple than these other two, its ability to expand matters most here, at least as far as Wall Street is concerned. That’s what makes it more valuable than its competitors.

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