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Frugal Nation: Used Car Sales Surging in September

Used car sales are surging this month with shares of publicly traded retailer CarMax jumping 33%, on track for the best performance of any S&P 500 stock in September.

“CarMax is positioned well as frugal consumers seek value in used cars,” said Craig Kennison, Robert W. Baird analyst, in a note last week. “Meanwhile, credit availability has returned to pre-recession levels.”

CarMax reported earnings this month that exceeded analysts estimates as used car prices climb back to near record levels, helping profit margins. Kennison believes the company's September sales will show double digit growth.

The frugal consumer is evident in a lot of the top stock market movers this month. We recently wrote about the jump in dollar storesto near all-time highs in September. The overall market rallied this month as concerns eased about a double-dip recession. Still, the make-up of the biggest movers hint that the recovery could be muted and the nation is in fact staring at the face of a long-term, much-discussed “new normal.”

“People are selling cars that they can no longer afford and buyers are looking for a cheaper, but quality vehicle,” said Jim Iurio, of TJM Institutional Services. “The overall chart still looks constructive and further gains look likely. Either buy it here or buy a dip around $23.”

Others share Iurio’s short-term caution after this big move. In fact, almost 7 percent of the available shares of CarMax are sold short, putting it in the top 10 percent of stocks hedge funds are betting against, according to data crunched by Birinyi Associates. Baird’s Kenninson has a “neutral” rating on the shares right now, but calls the stock a “big idea.” Just three analysts out of 15 rate the stock a “buy.”

“You can see a similar theme playing out with shares of AutoZone ,” said Steve Cortes, founder of Veracruz Research, citing the all-time high posted by the auto parts retailer today. “They are both benefiting from the frugal consumer buying used cars at CarMax and fixing their own with parts from AutoZone.”

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