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Time to take some profits with this auto stock

Pat Priestner, CEO of AutoCanada Inc., the first publicly traded company allowed to buy a stake in a General Motors dealership in Canada. May 2, 2012, in Edmonton.

Ian Jackson/The Globe and Mail/Ian Jackson/The Globe and Mail

Hi Lou,

I purchased AutoCanada in August 2012 and have seen it skyrocket. Do you see it continuing to go up?


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Hey Carolyn,

Congratulations on a great buy! You are sitting on a juicy gain which brings your question into focus.

AutoCanada Inc. is a consolidator in the the auto dealership space. They currently own and operate 30 dealerships under the Chrysler, Nissan, Audi, and Volkswagen brands. At this time Ford, Honda, and Toyota are not allowing the company to buy into their systems. The company intends to increase its operations by 20 per cent over the next two years by continuing to roll up dealerships where the principals are looking to get out of the business. There are a variety of reasons that dealers are motivated to sell, including pending retirement, increasing pressure to invest in new technology, and manufacturers leaning in on them to upgrade their stores.

What has contributed to the uptrend in the stock besides buying existing dealerships has been the rejuvenation of the sales process by the company. They have engaged a younger cadre of managers who are promoting their stores through a variety of channels. Greg Carrasco, the dealer principal at New Market Nissan, has been using a blend of social media and innovative radio programming to attract younger car buyers. It doesn't take a doctorate in business to know that the right people will make you money and drive the bottom line.

As sales targets have been met or exceeded the company has been generous with shareholders -- increasing the dividend in nine consecutive quarters and beating the Street on earnings in the last three quarters.

An examination of the charts will provide greater insight as how best to manage this investment.

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The three-year chart paints the picture of a sweet advance that has been in play since November of 2011 when the shares were trading under $4.00. What is worth noting is that the 50-day moving average has provided support all along the uptrend. The aggressive move higher that started in March of 2013 came in reaction to the release of fourth-quarter 2012 results which was the second consecutive quarter that earnings beat the forecast. First-quarter 2013 released on May 6, 2013, provided further fuel to the fire driving the shares up 17.5 per cent in just over two weeks.

The six-month chart has a couple of patterns worth mentioning. The stock has been taking a breather over the last couple of trading days as it consolidates around the $28.00 range. The MACD and the RSI are signalling that at this point the stock may have harvested all the available buyers and that a pullback may be in the offing. What we may be seeing is a case of all the good news having been baked into this cake and the market waiting for more good news to take the stock higher. The next event on the calendar will be the release of second-quarter 2013 in August.

You asked if the stock will continue to go up. At this point it looks like ACQ has gotten ahead of itself with a spectacular run that started at $17.00 in March providing investors with a better than 64 per cent return in two months. I would suggest that taking some of your gains off the table would be prudent.

Make it a profitable day and happy capitalism!

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About the Author
Lou Schizas

Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality - and a true believer in the happiness-inspiring powers of capitalism. More


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