Please ensure Javascript is enabled for purposes of website accessibility

Why CarMax, Copart, and Carvana Stocks Are Soaring Tuesday

By Rich Smith - Mar 24, 2020 at 11:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Coronavirus relief bill is just "hours" away.

What happened

Failure by Washington legislators to pass a $1 trillion-plus coronavirus relief package Monday sent stocks tumbling -- but the prospect that they'll get the job done today is having the opposite effect.

As of noon Tuesday, the S&P 500 is up 7.77%, and some individual stocks are doing much, much better than that. Shares of used-car superstore CarMax (KMX 2.42%), for example, are already up 10.9%. "Salvaged" car auctioneer Copart (CPRT 1.39%) has gained 14.7%. Carvana (CVNA -3.14%), which buys and sells cars over the internet, is doing best of all -- up 30.2%!

Aerial view of a full car lot

Image source: Getty Images.

So what

Why these three car stocks in particular? Well consider that two of the three, Copart and Carvana, operate largely online and are therefore largely insulated from the risk of both coronavirus contagion and being shuttered by government shutdown orders designed to slow the spread of the virus. CarMax, too, has a substantial internet-based sales operation. And even its physical stores may well be exempt from bans on the operation of "nonessential" businesses -- inasmuch as they facilitate an essential transportation service.  

Instead of shutting down entirely, CarMax has "temporarily closed" 45 of its 200-odd stores and instituted a raft of rules to minimize the risk of spreading Coronavirus at those still open. (Rule No. 1: CarMax is now "handshake-free.")  

Now what

So all three of these businesses remain in operation, albeit probably at a depressed pace because of the generally downbeat tone of consumers these days -- and their preoccupation with securing immediate essentials such as food, hand sanitizer, and toilet paper. Logically, at a time like this, consumers will put off thoughts of car shopping if possible and focus on the bare necessities.

In a few weeks, however, these consumers could begin receiving government checks aimed at both tiding them over through the quarantine period and spurring a resumption of consumption on the other side of the recession. Car companies would be logical beneficiaries of the sudden influx of large amounts of cash into the economy.

And that's what shares of CarMax, Copart, and Carvana are going up today.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Copart, Inc. Stock Quote
Copart, Inc.
CPRT
$110.17 (1.39%) $1.51
CarMax Inc. Stock Quote
CarMax Inc.
KMX
$92.67 (2.42%) $2.19
Carvana Stock Quote
Carvana
CVNA
$21.87 (-3.14%) $0.71

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.