CarMax Revs Up

In This Issue: CarMax Revs Up Fertilizer MLPs at Rock Bottom? Prediction: 31% GAIN in 12 Months! This Bermuda-based company is making a handsome profit on America's energy boom. It makes a critical, unique tool that energy companies desperately need. And they're willing to pay $635,000 a day to use it. This company owns 69 of them. That's $43.8 million a day in revenue. Its reach extends all over the world. No wonder it can afford to pay shareholders $4 a share. And you can buy it for less than $40. I expect it to hit $48 in the next 12 months. That's a 31% total gain! It's just one of 5 companies in my "secret" blueprint for income. Discover them all here. CarMax Revs Up 9/02/2014 By Thomas Scarlett CarMax (NYSE: KMX) is the largest retailer of used cars in the United States. The stock has been a strong performer over the last several months and we expect that trend to continue. The Virginia-based company earned 76 cents a share in the quarter that ended May 31. That's up 18 percent over the comparable quarter in 2013. The earnings figures surpassed the expectation of most Wall Street analysts. Also, net sales and operating revenues increased 13.3 percent to $3.75billion. Total used vehicle sales rose 9.8 percent. During the quarter, CarMax opened four stores, three stores of them in new markets -- Rochester, N.Y.; Dothan, Ala.; and Spokane, Wash. As of May 31, CarMax operated 135 used car superstores across 67 markets. The company says it will open 13 used car superstores in fiscal 2015 and 10--15 superstores in each of the next two fiscal years. "We had another great quarter, hitting an all-time record level of quarterly sales and earnings," said Tom Folliard, president and chief executive officer. "The improvement was broad-based, with contributions from our retail and wholesale operations." The used car business has often been the butt of jokes, but CarMax, which opened its first store in 1993, has brought a greater degree of integrity and dependability to the business. It was the management of big box retailer Circuit City had the idea of creating a chain of used car dealerships with standardized procedures and reliable guarantees. The business has been growing consistently ever since. Ironically, Circuit City itself is now long gone, a victim of the radical changes in the electronics and entertainment markets, but its automobile-selling progeny is still going strong. CarMax was able to maintain profitability during the recent recession because some Americans were not eager to shell out big bucks for a brand new car, but still needed a new set of wheels. The average age of cars on U.S. roads is about 11 years. That's the highest figure since 1993, when the US economy was also just emerging from a lingering downturn. Auto dealerships are some of the biggest beneficiaries of a recovering economy. CarMax is actually a holding company that operates two main subsidiaries, CarMax Auto Finance and CarMax Sales. Earnings figures for both sides of the business have been strong. While used cars has always been the main business, CarMax purchased the rights to new car locations from most major car manufacturers. CarMax also purchased an Auto Mall in Kenosha, Wisconsin that had additional manufacturer franchises. CarMax operates more than 100 used car superstores and eight new car franchises, all of which are integrated or co-located with its used car superstores. A typical CarMax store is approximately 59,000 square feet, carries an inventory of 300--400 vehicles, and turns its inventory over eight to ten times a year. On average, a CarMax location employs 40 sales associates. CAF income (that's CarMax Auto Finance) increased 12 percent to $84.4 million. The effect of the increase in managed receivables on CAF income was partially offset by a lower total interest margin rate, which declined to 7 percent of average managed receivables in the current quarter from 7.6 percent in last year's second quarter. The interest margin reflects the spread between interest and fees charged to consumers and funding costs. CarMax has been expanding into new markets. The company recently opened two new stores, including one in Katy, Texas (its fifth store in the Houston market), and one in Fairfield, California (its third store in the Sacramento area). The company has been listed as one of Fortune magazine's "100 Best Companies to Work For" for nine consecutive years. One sign of its financial health is that it is recruiting for more than 1,000 positions in locations across the country. The majority of open positions are in service operations (detailers, experienced technicians) and sales, with additional positions in purchasing and the business office. These are full and part-time permanent positions, with day and evening shifts available. Some of the markets where the company is seeing its largest growth include Baton Rouge, La.; Columbia, SC; Charlotte, NC; Nashville, Tenn.; Lancaster, Pa.; and several markets in Texas. The economic expansion is under way, but with interest rates remain relatively low. This will bring more car buyers out to the lots, and that's good news for CarMax. It's a buy up to 54. Thomas Scarlett is an analyst at Personal Finance and its parent web site Investing Daily. Turning $10,000 into $80,900 Love great big capital gains? How about juicy, rich dividends? My favorite energy stock is throwing off a fat 10.6% yield. But here's really good news: The dividend is growing so fast, it could almost triple within 5 years – to 27.7%. But it's more than a dividend story. The stock price could double in 18 months and be up 709% in 5 years. That turns every $10,000 into $80,900! What kind of energy stock is it? One that could make you substantially richer. What it is and how to get it… The details are here. Fertilizer MLPs at Rock Bottom? 9/02/2014 By Robert Rapier With the exception of the few master limited partnerships (MLPs) that are completely outside the oil and gas industry, most have at least some sensitivity to oil and gas prices. For the most part, the midstream and upstream MLPs have various strategies in place to keep distributions stable and, ideally, growing over time. Midstream partnerships achieve this stability by charging mostly fixed fees for their services. Upstream partnerships have more direct exposure, but they generally hedge against falling commodity prices in order to protect revenue and profits. But there are MLPs that allow themselves to be more exposed to commodity prices, and as a result many of them employ a variable distribution policy. When business is good, they distribute more cash to investors. But when business is bad, distributions can be cut sharply from one quarter to the next. Most of these variable distribution MLPs do not have incentive distribution rights (IDRs) that grant the general partner a greater percentage of the income above a level set by the partnership agreement. This increases the amount of distributable cash flow (DCF) available for distributions to investors. These variable distribution MLPs are for the most part downstream producers in either the oil refining sector or the fertilizer production business. The following table to my knowledge covers the full listing of variable distribution MLPs, sorted in descending order of their 12-month total returns: Conventional valuation metrics for evaluating MLPs should be used with care when looking at the variable distribution MLPs. Yields, for instance, can fluctuate wildly. A refiner coming off of a great quarter might make an unusually high distribution, but if future market conditions are expected to be poor then the unit price may be driven down. A great previous quarter distribution combined with a poor near-term outlook is why you will occasionally see variable distribution MLPs with yields in the 15-20% range. But these yields are generally misleading, as a distribution cut often follows. So don't ever buy a variable distribution MLP on the basis of an astronomical yield. So what kind of investor should consider a variable distribution MLP, and when is the best time to buy one? Variable distribution MLPs aren't suitable for conservative investors seeking stable income. They are more suitable for short-term investors who are willing to buy during the down cycle and then sell at the first sign of trouble. Few of these MLPs were in existence before 2011, so it's hard to gauge how a buy and hold strategy might perform, but the following chart of CVR Partners (NYSE: UAN) since its IPO isn't encouraging: Since the 2011 IPO the unit price is down by 12.7%, but UAN has also distributed $6.07 to investors since going public. To understand the volatile nature of these distributions, consider that the partnership's distribution following Q3 2012 was $0.50/unit, but then the distributions in the next two quarters were $0.19/unit and $0.61/unit. The most recent distribution following Q2 2014 was $0.33/unit. Also notice in the chart the volatility over time. The peaks and valleys represent the cyclical nature of the fertilizer business. It is important that investors understand the reasons behind the cyclicality. In the fertilizer business, the cycles are driven by the relationship between natural gas prices and fertilizer demand. (With refiners it's the relationship between crude oil and finished product prices.) Natural gas prices have crept up this year relative to last year, and a bumper corn crop and flat ethanol demand have created expectations of softening fertilizer demand, and therefore lower margins and distributions. That is reflected in the 12-month performance of the bottom three MLPs in the table above, all three of which produce fertilizer. Of course to be successful in timing your entrances and exits in the variable distribution MLPs, you need to buy in during the down cycle and cash out when things look great. Right now the fertilizer business is definitely in the down part of the cycle. There is a risk of investing too early and seeing the sector fall a bit more (and higher natural gas prices this winter are a risk), but history argues that the fertilizer MLPs will bounce back. As an investor, I am a bargain hunter. Mostly I seek out long-term investments, but at times the cyclical MLPs can become too attractive to pass up. Right now, for those interested in variable distribution MLPs, the fertilizer category is one worth watching. This article originally appeared in the MLP Investing Insider column. Never miss an issue. Sign up to receive MLP Investing Insider by email. Do You Want to Be the 2001st Millionaire? North Dakota University's Center of Innovation estimates that the Bakken oil field creates 2,000 millionaires a year. That was Phase 1, when profits reached as high as 3,300%. Phase 2 is now underway, and I urge you to join me for the torrent of Bakken: Phase 2 black gold profits that will boost a select group of stocks. Here are 5 Bakken stocks to jump on now. You are receiving this email at benjamart.ss.stock@blogger.com as part of your subscription to Investing Daily's Stocks To Watch, published by Investing Daily. To ensure delivery directly to your inbox, please add postoffice@investingdaily.com to your address book today. Email Preferences | About Us | Premium Services | Contact Us | Privacy Policy Copyright 2014 Investing Daily. All rights reserved. Investing Daily, a division of Capitol Information Group, Inc. 7600A Leesburg Pike West Building, Suite 300 Falls Church, VA 22043-2004 U.S.A.