CarMax Is Worthy of Consideration

My purpose in this blog is to offer information I am using to seek ways to make significant gifts to ministry causes on my heart. The best gift one can make is the gift of appreciated stocks. So if we are actually able to buy stock, have it appreciate over time beyond a year and not sell but give the stock we are able to do more. Of course that is assuming appreciation. So, I seek to use a proven method to analyze companies to give me the best opportunity for growth. It is a tool used in investment clubs since 1951 called the Stock Selection Guide. I have found another company for your consideration that meets the strict guidelines of the SSG.

Ticker: KMX 

CarMax is a $15 Billion company making it Large Capitalization in the Better Investing rankings. 

Sales grew at 11.6% over five years and earnings at a healthy 15.4%. Pre-tax profit on sales has been a steady 6.58% over that same period and earnings on equity was 16.38%. Its debt to capital is at 71% but car companies are always high in floor plan debt. In most companies we look for 33% or less. 

It is the leader in the industry over AutoNation, Group 1 Automotive and Penske Automotive Group in sales and earnings lag the group average some. 

It is currently in the high of the BUY zone at $56.5. That zone is $42-58. The upside/downside is 3.6 to 1.

CarMax is the nations largest retailer of used cars. It has 158 lots in 60 cities. It also has a profitable financing arm. In 2015 the average price per car was $19,917 and average profit per car of $2,109 a 10.6% margin. 

Positives:

1. It has enhanced its web sales development and has a major competitive advantage in this venue.
2. It has a wholesale vehicle auction that is 14.5% of sales. This allows an outlet for trade-ins and slower merchandise.
3. Greater number of drivers in the future and gas prices make automobiles more attractive. 

Negatives:

1. Car business is cyclical.
2. New cars are sometime easier to buy. 
3. Pricing has been more difficult and margins are trending lower

We are going to add to our portfolio 100 shares of KMX @ $54.44 or $5,444.00 minus $7 transaction fee so cost is $5,451.00. 

LCI $3,000 value ... $3,238 cost basis ... -240.00

KMX $5,444 value ... $5,451.00 cost basis ... -7.00

Sent from my iPhonehttps://www.carmax.com

Getting Started Now

The best time to start investing is NOW. Randy Thurman, a CPA and financial advisor, who taught my investment 101 class at Oklahoma City Community College told our class that the number one obstacle to financial success is procrastination. So start.

Where to start?

1. Contribute regularly to your company retirement plan. If they match at least contribute to capture that free money. You will not miss it.

2. Set up a monthly contribution to your future. Start with $50 a month and lock it in automatically.

A. That may go to a brokerage company like TD Ameritrade, Scottrade or you choose. Open an account and start an automatic payment to that account and then forget it. Live life.

B. You may instead wish to open a dividend reinvestment plan and purchase small portions of one stock each month with the quarterly dividends going to purchase more shares. These usually require a $500 - $1000 start up investment. Click on link below.

https://www-us.computershare.com/Investor/3x/Plans/PlansList.asp?bhjs=1&fla=1&cc=us&lang=en

Or most mutual funds will allow you to make monthly contributions once you have established an account. I have used the Oakmark Funds. They also require a lump sum to star the account.

 http://www.oakmark.com/oakmark.htm

The key is to start. I will start my/our $50 savings plan? Most can be done online today.

Why Finance? A Drug Company to Consider

I am a retired minister. That should scare you. Most ministers are not thought of as financial minds. As a matter of fact, I was turned down one time by a prominent Oklahoma Oil Company for a company credit card on the basis that I was the pastor of a church. They did not say that but my cousin worked at the corporate office and when I asked why I was rejected she informed me that ministers do not have a very good reputation in the financial community. That was new to me a young guy, pastor of his first church, in a rural community with only one gas station. I just paid cash at Frank's store and Kerr McGee. Oh, I was not going to say the name but it does not matter because they are no longer in business. Poetic justice. I did not get over it.

This new blog is entitled:

τοποθέτηση χρημάτων 

Financial Investment in greek. 

The greek is to prove I do have a theological education (a doctor's degree) but this blog is not about theology. It is about making money in the stock market. I started to call the blog Dr. Deep Pockets or Dr. Deal but I don't feel like an expert on this subject. How does that work for you? I just study hard and use strategies I have gleaned from observation, experience, research, and through a discipline I learned in my  investment club of almost 20 years. The SSG or Stock Selection Guide. 

Each post will recommend a stock I or we are studying and recommending with thoughts as to why we or I think it is worthy of your consideration. I am not a broker, the son of a broker and all of the small print lawyers write to assure that I will not get sued for your taking my advise apply to this post. This is not advise just information. Take it or leave it. If you make money then give me credit and share my post. If you lose money then go cry to someone else. Not really. You can go talk to your pastor about it. He only works  two days a week. Ha. Inside joke. 

So the first stock to consider:

http://www.lannett.com


Here is what they say about themselves.

"Founded in 1942, Lannett develops, manufactures and distributes generic prescription pharmaceutical products in tablet, capsule and oral liquid forms to customers throughout the United States. Lannett markets its products primarily to drug wholesalers, retail drug chains, distributors, and government agencies."

Positives about the company:

1. It sells generic drugs. That's cheaper. Attractive product.
2. Baby boomers are aging. That's me. More demand.
3. Although it is a small capitalization company (one under 1 Billion in annual sales) it has grown sales in the last five years at a rate of 48% and earnings at a rate of 46%. These two aspects of a company growing at about the same rate is a great sign.
4. This company meets all of the criteria on the SSG stock selection guide for the Better Investing Community. It leads the industry in pre-tax profit on sales and earnings on stockholders equity. It is also in the BUY zone with a 4.6 to 1 upside down ratio. At $32.38 it is in the middle of the buy zone that is between $15.60 and $39.20.

Negatives about the company or economy:

1. The current political climate is not good for pharma stocks. Uncertainty in the election cycle where both candidates are questionable on how health care will go under their administration.
2. They are still absorbing the recent buyout of Silarx Pharma and some questions remain as to how that will settle out.
3. It has lots of current debt that spiked in 2015 to make acquisitions.


For this blog we will buy 100 shares today at the market price of $32.38 and will see how it does over the next 12 months compared to the other companies we will study. Follow along to see how this works.

So we currently own 100 (a round lot) of shares of LCI @ $32.38 or $3,238.00 - $7 transaction cost or a value of $3,231.00 with a cost basis of $3,238.00 so we have already lost money. Ha! That's investing.