An analyst downgrade by FBR Capital allowed us to re-enter our O'Reilly Automotive (ORLY) position that we had exited prior to earnings. Unfortunately, I missed the low of the day writing the previous entry but we took our position back up from a 0.1% allocation to 2.4% with purchases in the $39.50s. Considering we sold almost our entire position at $40.80 to avoid earnings reaction risk, that ended up working out well in the end.
I will place a stop under the 50 day moving average which of course the stock precisely fell to, before bouncing in the early part of the session - so we not only locked in our gain, but were fortunate enough to be able to re-enter right above a key support. Now if the market corrects (don't laugh) we can exit with a very small loss on the long position on a break of support.
Obviously a wildcard here is how many extensions of Car for Clunkers we do - and I am serious it could keep getting extended indefinitely until every person who planned to buy a car in 2010-2012 is brought forward into 2009. Since those cars are being scrapped rather than being resold to the lower income strata amongst us, this program should actually drive up used car prices to some degree (which is great for the working poor!) but also take a tiny blip of supply out of the type of car that O'Reilly would service. If its 1-2 Cash for Clunker programs it is no big issue - but if we start doing $2 Billion in handouts every month that is going to be 500K cars each. So we have to watch it, even if the reality on the ground is not that bad for these automotive replacement shops, in the market all that matters is perception. So once more Washington DC means much more to our investment than Main Street USA. I don't know the nature of the FBR downgrade but I can see analysts beginning to overreact to Cash for Clunkers, so it could be the reason.
[July 30, 2009: O'Reilly Beats, Raises]
[Apr 30, 2009: O'Reilly Automotive Solid Results; Making Progress on CSK Acquisition]
[Apr 1, 2009: Automotive Replacement & Accessories Continues to be a Winning Theme]
[Jan 15, 2009: Thesis - Automotive Replacement and Accessories]
Long O'Reilly Automotive in fund; no personal position
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