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Why CarMax, Copart, and Carvana Stocks Are Soaring Tuesday

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

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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.

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Stocks Mentioned

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

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

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