When investors are too focused on the big picture, like trade and interest rates, they can sometimes miss great stories at individual companies, Jim Cramer told viewers during his Mad Money program Friday night. Case in point: CarMax Inc. (KMX) , which soared to new highs Friday on stellar earnings. Shares of KMX are up 36% for the year and Cramer said there's more upside to come.
Cramer last recommended KMX in January of 2018 and after a remarkable run to new highs, the shares plunged in the fourth quarter of 2018, as interest rates rose and car sales weakened. Same-store sales at CarMax dropped 1.2% in the December quarter. But since then, shares of CarMax have been coming on strong, as the company's investments into a new digital business are beginning to pay off.
Cramer said at 16 times earnings, KMX is a bargain and he'd be a buyer into any weakness. If President Trump follows through on tariffs for new cars, it will be a huge win for the used car market.
Let's check out the charts of KMX.
In the daily bar chart of KMX, below, we can see that prices declined from September to December and then needed three months of sideways price action before they could rally into April. In the past eleven weeks KMX has rallied above the 50-day and the 200-day averages. The slopes of both indicators are now positive and a bullish golden cross can be seen in early May.
The daily On-Balance-Volume (OBV) line shows a rise from April but it has not broken above the September high so this is a bearish divergence until the OBV line breaks out to new highs.
In the lower panel of the chart is the 12-day price momentum study, which shows a low high from April to June even though prices show a higher high -- another bearish divergence that tells us that the pace of the rally has slowed. A rally often slows before the peak is seen.
In the weekly bar chart of KMX, below, we can see that prices are above the 2018 highs, above the 40-week moving average line and the slope of the line is just now slightly positive.
The weekly OBV line has broken out to new highs unlike the daily OBV line. The weekly Moving Average Convergence Divergence (MACD) oscillator is bullish and pointed higher.
In this Point and Figure chart of KMX, below, we can see the recent upside breakout and a potential longer-term price target of $102.
Bottom-line strategy: KMX is looking strong on the charts despite my concerns about the broader market. If long KMX you should continue to hold with a sell stop below $80 now. If looking to go long KMX try to buy it around $85. The $100 area is our price target.