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Today's idea doesn't belong to any macro theme. Some might call it a recession play or a green play, but in reality it's just an interesting company utilizing some innovative business ideas. We are talking about LKQ Corp. (LKQX - commentary - Cramer's Take). This company is in the business of recycled auto parts. It sounds like a noble cause, but in reality it's simply the business of salvaging parts from junk cars and wrecks. LKQ buys totaled cars at auction and then strips them down and resells the parts.
The other basic driving force here is that in times of slowing economic growth or recession consumers look for the cheapest option when it comes to anything, especially car parts. LKQ also prospers as new car sales drop. Also, LKQ doesn't manufacture parts, but rather distributes them. The stock has been rallying lately as a reflection of the success and optimistic expectations of for the company. The most striking thing we see in the price configuration is the resilience and relative performance the stock has had in recent months. It has not been an easy start to the year for the vast majority of stocks, yet LKQ has managed to buck the negatives and actually performed very well on an absolute and relative basis. After a strong rally into year end, the stock pulled back succumbing to some profit taking coincidentally with the overall market weakness in January. Since then the stock has been working its way higher, recovering most of those losses and creating another bullish set-up in the process. The lateral price action is forming a bullish consolidation that typically precedes higher prices. The volume has been constructive as well staying on the light side while the consolidation has formed. This set-up is occurring just beneath the prior highs, a bullish occurrence. We would expect the stock to continue to advance and look for a further move to the $30 level and would be buyers at current price levels. Trail a stop below the $21.00 area.
At the time of publication, John Hughes and Scott Maragioglio had no positions in stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.
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