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Sell Block: Cramer’s ‘Cash for Clunkers’ Trade

Some great investing ideas come from simply reading the newspaper. So when Cramer saw the headline, “‘Clunkers’ Draws Customers to Car Dealers,” in last weekend’s Wall Street Journal, he immediately thought of AutoNation as a trade. The largest independent auto retailer should see a bump in business if the government’s paying people to swap their gas-guzzlers for more fuel-efficient vehicles.

The problem? AutoNation had run for a month in anticipation of the program because a lot of investors had the same idea. As a result, Cramer had to admit that he’d missed the move. While the mea culpa may come with a pang of pride, that’s a much lower cost to pay than buying after the trade has passed.

“No idea, no matter how good, can make you money,” Cramer said, “when somebody else, or a lot of somebodies, have gotten their first. Sometimes you’re just too late to the game.”

“Cash for clunkers” is a government program that gives buyers of new cars a $3,500 to $4,500 rebate when they trade in older vehicles for newer, more environmentally friendly cars. The kick-off was last Friday, July 24 – hence the WSJ coverage – but the legislation that made it possible was signed a full month before. That’s when most investors piled in to AutoNation.

The stock ramped to $21 from $16, a $5 increase, or 31%. With the charts predicting just another $2 of upside and AutoNation already up 400% from late last October to the bill’s passing in June, it’s obvious that this trade has come and gone.

What about other stocks that might have worked? Well, the program only applies to new cars, and they account for only 3% of Carmax’s business. And this stock has also enjoyed a nice run. Penske the second-largest auto retailer after AutoNation, but the company focuses mainly on luxury vehicles, which would most likely exceed the programs $45,000 limit. While Cramer likes these stocks as a play on closing GM and Chrysler dealerships – especially Penske – he recommended waiting for them to pullback before buying.

AutoNation was a good idea, Cramer said, but too many other investors got there first. And a good investor always knows when to say, “I missed that.”

“That’s what you have to do with AutoNation and the 'cash for clunkers' catalyst,” he said.

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