Sell Block: Car Renters Rally 3,000%
“Hate” might be too strong a word to describe Cramer’s attitude toward car-rental stocks. But his extreme dislike of the group is right up there with the airlines – he just won’t recommend them.
But get a load of this: Since the March 6 bottom, Avis Budget Group is up over 3,000%, to $11.78 from 34 cents. Dollar Thrifty has soared even higher, more than 3,100%, reaching a 52-week high of $26 on Thursday from a 60-cent low. And Hertz , the laggard of the group, has registered a 351% gain, climbing to $10 from its low of $1.55.
No, vacation and business rentals haven’t suddenly taken off. The used-car market has. These companies make a significant chunk of cash selling their fleet’s older vehicles, and used cars are fetching premium prices right now.
“We’ve reached a point where the used-car business may be the strongest business in the country,” Cramer said. “It has almost totally eclipsed the rental-car portion of the rental-car business.”
Carmax, the largest used-car retailer, said in September that wholesale values are rising while the overall supply is declining. That’s because rental companies have maintained their older fleets, and the Cash for Clunkers program required that trade-ins get scrapped. As a result, used vehicles are in demand, and the Hertzes of the world are cashing in on it.
In fact, Hertz has the most to gain from this trend, Cramer said, and that’s why he recommended the stock over Avis and Dollar Thrifty. Seventy percent of Hertz’s fleet will be sold on the used-car market (the rest are either leased or sold back the dealerships from which they came). Meanwhile Avis will sell just 42%, and Dollar Thrifty even less. Cramer also likes Hertz’s strong international presence.
While none of these companies have great balance sheets, he said, HTZ “is worth owning, and it happens to be the least expensive of the three.”
What about CAR and DTG? Cramer put them in the Sell Block.
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