AutoNation (AN)

AutoNation's markets in California and Florida, which account for half of new vehicle sales, drove down earnings last year. The two states account for 20 percent of industry-wide new vehicle sales. When things get better, investors ought to see an amplified increase on the other end due to the repurchases. Hold flat in down times and explode up in good ones, very nice.

Forecasts this year call for about 15.5 million cars to be sold. Now, interesting tidbit. On CNBC, CEO and Chairman Mike Jackson was speaking of running his (or any) business. In the interview he said he runs his business for "a 1,000 year flood". He then said that if auto sales dropped to 10 million units, "a depression" he called it, his business would be "cash flow neutral". That is his basis for decision making.

As a potential investor, this is fantastic news. It simply means that the business will still produce cash even in an almost devastating economic climate. Wonderful...

A positive cash company in the current economic climate makes for tremendous flexibility competitors will not have. Jackson can reduce debt, repurchase shares or expand. In fact, Jackson has reduced share count by 30% the last two years. The repurchases have allowed EPS to stay flat at $1.44 despite the downturn in the auto industry during that time frame.

In the past two years, U.S. auto retail sales have declined 12 percent, Jackson said in early February and he said that economic downturns run in cycles of 30 to 40 months, and the market is currently 24 months into the downswing.

AutoNation's markets in California and Florida, who account for half of new vehicle sales drove down earnings last year. The two states account for 20 percent of industry-wide new vehicle sales.

When things get better, investors ought to see an amplified increase on the other end due to the repurchases. Hold flat in down times and explode up in good ones, very nice.

The demand for auto related items can be found in recent news from auto parts retailers like AutoZone (AZO) and Advanced Auto Parts (AAP) who both reported increased earnings in the latest quarter. The things is, people have to have cars, the demand will always be there and Jackson has built a business that can capitalize on all demand scenarios.

Trading at 9 times earnings AutoNation will be a winner when demand for auto's returns. That, it turns out may be sooner than we think. $4 a gallon gas is already changing people behavior and there just may be a rush to trade in that SUV for something much more affordable on gas. Whether it happens now or year from now, AutoNation currently trades at a multiple that assumes it just may never happen, that is wrong..

Eddie Lampert of Sears Holdings (SHLD) can't seem to buy it fast enough and he currently owns over 35% of the company. Forecasts this year call for about 15.5 million cars to be sold. Now, for an interesting tidbit. On CNBC Wednesday, CEO and Chairman Mike Jackson did an interview and spoke of running his (or any) business. In the interview he said he runs his business for "a 1,000 year flood." He then said that if auto sales dropped to 10 million units, "a depression" he called it, his business would be "cash flow neutral." That is his basis for decision making.

A positive cash company like AN in the current economic climate makes for tremendous flexibility that competitors will not have. Jackson can reduce debt, repurchase shares or expand. In fact, Jackson has reduced share count by 30% over the last two years. The repurchases have allowed EPS to stay flat at $1.44 despite the downturn in the auto industry during that time frame.

Eddie Lampert of Sears Holdings (SHLD) can't seem to buy it fast enough and he currently owns over 35% of the company. Forecasts this year call for about 15.5 million cars to be sold. Now, for an interesting tidbit. On CNBC Wednesday, CEO and Chairman Mike Jackson did an interview and spoke of running his (or any) business. In the interview he said he runs his business for "a 1,000 year flood." He then said that if auto sales dropped to 10 million units, "a depression" he called it, his business would be "cash flow neutral." That is his basis for decision making.