I'm Buying This Stock for My Roth IRA This Week

Last week, I introduced five stocks for the greedy investor's watchlist. In it, I promised to reveal which of the five I'll be including in my Roth IRA. I'm here today to tell you that Zipcar (Nasdaq: ZIP  ) will be earning a seat at my Roth IRA's table.

Why I'm buying
I'm in the middle of reading Clayton Christensen's brilliant book, The Innovator's Dilemma. In it, Christensen talks about how several new, young companies are able to usurp their much larger and more mature competitors by introducing disruptive technologies.

While Zipcar, which provides a car-sharing program for the carless in both large urban areas and college campuses, hasn't really introduced any disruptive technology to the automotive arena, I think it's actually on to something even bigger: a disruptive idea.

In creating a subscriber-based company that offers its Zipsters all the benefits of car ownership -- namely, timely transportation and the ability to move large objects -- with none of the hassles -- like paying for gas, looking for parking spots in crowded downtown neighborhoods, or worrying about insurance -- Zipcar is looking to disrupt two industries.

An angry Detroit?
Typical titans of the car industry like Ford (NYSE: F  ) and General Motors (NYSE: GM  ) , even though Zipcar buys and leases from them, stand to suffer from slower sales as customers opt for the convenience and value proposition Zipcar offers over the hassles of ownership.

Even Tesla (Nasdaq: TSLA  ) could see its attempts at profitability thwarted. As wealthier but environmentally conscious consumers consider their options, they may choose car-sharing over electric vehicles as a better option for the environment.

Skipping the rental counter
On the other side of the equation, we have car rental companies like Avis (Nasdaq: CAR  ) and Hertz (NYSE: HTZ  ) that could see their rentals being sliced away as well. If I land at D.C.'s Reagan National Airport, why would I rent a car when I can take the Metro to a Zipcar and use the car at my behest for far less?

It should be said that Hertz isn't going to take this lying down. It has offered a similar service to Zipcar's. Hertz On Demand offers hourly rentals with insurance and some gas covered, and it does this without a membership fee.

But Hertz has two distinct disadvantages. First, its on-demand offering is in far fewer cities and campuses than Zipcar's. Second, when I take a quick look at where Hertz's rentals are in the D.C. area, there are only two locations -- both near Union Station. Although this location makes sense for visitors, Zipcar has tons of members (600,000 and counting) who use the service for daily errands in their home city. For them, this one location would be wholly inadequate.

One last disruptive characteristic
One of the keys that Christensen points to in disruptive technologies (or in this case, "ideas") is that at first, the product is only adopted by a small niche market that slowly grows to envelop much more than initially projected.

With its initial focus on four distinct urban areas and college campuses, the same can easily be said for Zipcar; it has started with a niche market. Moving forward, it will be difficult to analyze its market potential (both in the U.S. and Europe) because much of it depends on consumers fundamentally changing their relationship to automobiles. Only time will tell how large the market opportunity really is.

Get started today
There are two reasons I'm starting this series. The first is because I'd like to establish a public record for how my stock picking is doing in a forum that will help hold me accountable. By announcing one stock a month that I'll be investing my Roth IRA money in, I gain that accountability.

But the second reason is that I think Roth IRAs are underutilized by many of today's newer entrants to the workforce. Though things like building up an emergency fund and paying off high-interest debt need to come first, contributing regularly to a Roth is one of the most important steps you can take in your investing life.

I hope that my public nods to Roth IRAs will encourage others to take advantage of their own accounts.

An IPO? Really?
I'll be the first to admit that investing in IPOs probably isn't considered conventional wisdom in investing circles. But The Motley Fool is definitely unconventional. In that vein, I'm willing to offer you access to a special free report assembled by our team of analysts: The Hottest IPO of 2011. No, it's not Zipcar, but the company you'll find out about has the potential to produce the same kind of returns had you invested in McDonald's all the way back in 1971. The report is yours today, absolutely free!

Fool contributor Brian Stoffel doesn't own shares in any of the companies mentioned, but he will be buying shares of Zipcar on Thursday. The Motley Fool owns shares of Hertz Global Holdings, Ford Motor, and Zipcar. Motley Fool newsletter services have recommended buying shares of McDonald's, Ford Motor, Zipcar, and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (11)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 29, 2011, at 10:33 AM, LloydBraun wrote:

    "I'm Buying This Stock for My Roth IRA This Week" - reads like the title of an Onion article. Body reads that way too.

  • Report this Comment On August 30, 2011, at 12:27 AM, cubanstockpicker wrote:

    Before you decide to dump your roth ira account. Look a little more under the manipulated reviews in Yelp and others. The ones that are obvious pumpers of the idea sound so far and away fabricated its ridiculous, with the truth tellers writing on how the cars are dirty and they got stuck with the cleanup bill. Anyone with an average education can figure out what sounds like a cookie cutter entry prepared by a PR company that uses blogs to drum up business.

    Have you also read the fine print on the 50.00 fee for being a minute too late? And how the attendants, which are on the phone just repeat the policy and you get shafted.

    Lets see one hour rental 6.00 wow, value proposition, disruptive business model.

    50.00 late fee for being a minute late,... well the value proposition just got tanked.

    If Hertz really wanted to(which they obviously are), they can have a car parked in each campus within the next 90 days. A no membership fee(plus) and maybe a small kiosk where people can rent the car with a credit card and have it spew out a key(plus). If hertz really wanted to nail them, then they will setup a waiver or just a partial charge if your late.

    Also lets not fail to mention how zip-car is handing out memberships with tons of free driver credits just to show investors they got three thousand members. Sure sign me as a member and give me 5 hours of free car driving. Ill just cancel the membership right after.

    I hope I am wrong for your sake, since I have nothing put in here and only have a thumbs down in fool.

    Try stem, a new investment firm just started coverage with an expected price of 5.00, the stock is at 2.30 right now. I don't have any skin there either, but I sure as heck don't want you jumping off a bridge for losing your retirement account.

    http://www.fool.com/investing/general/2011/08/27/did-zipcar-...

  • Report this Comment On August 30, 2011, at 1:38 AM, mikecart1 wrote:

    This article is one of the worst ever and I have good reason. In my MBA program, we studied the Zipcar company and how they got money over and over from venture capitalists despite a poor business model, idealist revenue streams, and very very ideal future earnings. They would give these elaborate estimates of the future of how Zipcar would be making mad money yada yada yada. We studied Zipcar back in 2008-09. It is 2011 last time I checked and the only thing that changed is that I got an MBA degree in 2010 ahahah!

    Zipcar = one lousy business model of epic proportions!

  • Report this Comment On August 30, 2011, at 5:13 PM, TMFCheesehead wrote:

    Wow, you guys really don't like this stock. I appreciate and respect your opinions, but think we'll just have to agree to disagree.

    @cubanstockpicker-

    I'm not going to ding late fees for taking away convenience. Actually, I think it ADDS to the value proposition because it is these very same fees that ensure that my car will be waiting for me when I go to pick it up, not out on the road with someone who isn't worried about late fees.

  • Report this Comment On August 30, 2011, at 6:17 PM, JBG189 wrote:

    I am a car-less Zipcar member. I first used the program in DC, and now use it in NYC.

    I think it's a great concept, because it's an option, and options are great. However, I would never invest. Zipcar is the option of last resort for those of us in it's very limited audience.

    There's a VERY IMPORTANT note about the fee. You can extend your reservation in less than a minute from your phone app or a phone call for 1/2 hour (i.e. 5-6 bucks). If you can't extend, it means the car is reserved and you are in fact inconveniencing some other user. I purposely try to reserve cars that someone else has reserved an hour or two after I plan on bringing it back (hoping that no one would find that 1-2 hour window useful and thus it will remain open if I need to extend).

    There's a lot to complain about with Zipcar, but it does have a very limited audience. (It's merger with flexcar was clearly a result of finding the upper bound of that market).

    I would recommend zipcar to a fellow member of “the audience” (i.e. the small group of people like me who have no better options for certain situations), but I think investing in the company would be devastating.

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