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Facebook is under siege. Personally, I think it's unfair, in part. Facebook is in the news because the company does exactly what it said it would do.
Like many of the largest companies in the world right now, Facebook is a data company. It collects information from users and packages billions of bits of random information into usable data files that customers then pay for.
The current problem seems to be caused by the fact that the users who provided information somehow believed they were customers. Users don't pay Facebook and they give away their information on the site. Facebook has long said they make money from all of that information. The real problem is that many users failed to realize private information could be used in ways they don't like.
This highlights the distinction between the physical world and the online world. In the physical world, I won't tell a random stranger what my interests are or allow them to access the contacts list in my phone. But, in the online world, it turns out that it's common to allow access to our list of contacts.
Now, Facebook will probably have to change to address the uproar about online privacy. But that doesn't diminish the value of personal data. Companies will still want to collect and use data about their customers. It will just be a little more difficult to do so. Going forward, the winners are likely to be companies that are transparent in their operations.
Winners will collect specialized data, and their customers will understand why they are providing data. Among the companies that are already doing this is CarMax (NYSE: KMX).
A Winner In the Fight For Your Data
CarMax is the nation's largest retailer of used vehicles, with 181 used car stores in 89 television markets. The company sells more than 600,000 used vehicles at retail every year and another 300,000 or more cars at the wholesale level.
The company notes it "compiles a vast amount of data through different areas of operation." Since its founding, the company has sold more than 10.5 million vehicles and appraised more than 25.5 million cars and trucks. This has led to over 65 million in-store customer contacts.
Online, the company reports more than 200 million digital interactions a year. More than half a million customers provide detailed information in surveys every year.
Now, a car dealer collects a lot of information. Many buyers finance the purchase, providing personal details that exceed what Facebook collects. CarMax has financed over 750,000 customers with its own finance service, CarMax Auto Finance, and collected applications for third-party financing from millions more customers.
CarMax focuses more on the used-car market, which helps it to outperform the industry. Used car prices tend to move up faster than new car prices over time.
CarMax is also growing with an aggressive store expansion initiative, opening more than 20 new stores in the past two years. Growth in earnings per share (EPS) is also being driven by share buybacks. The company has decreased the number of shares outstanding by more than 20% in the past five years, and the board of directors has authorized enough to buyback an additional 9% of the outstanding shares.
These long-term trends reinforce the short-term reasons for today's trade. The short-term trend in used car prices is up for every type of vehicle.
Sales, and prices, are likely to move higher. The used car market is correlated with the tax calendar. Traditionally, used car sales peak just after the peak in tax refunds. Starting in 2017, the IRS delayed the start time for when households eligible for tax credits could file their tax returns. As a result, tax refunds were delayed by approximately four weeks. This delay impacted used vehicle sales and used vehicle pricing in 2017 and again this year.
Analysts now note that the weekly trend in the number of refunds is up compared to last year. That means used car prices and KMX's sales should be strong in April as retail demand will likely reach its peak for the year.
That makes now the ideal time for a trade in KMX.
How I'm Trading This Stock -- Without Buying A Single Share
If you're interested in catching some of the potential upside, you can always buy shares of KMX and wait for the pickup in sales to boost share prices.
But I found a better trade... one that guarantees that I will collect 4.3% in income in just over a month. That's a more-than-comfortable 44% annualized. And all without buying a single share of the stock. This trade uses a high-income, short-term put option on KMX.
Now, I understand not everyone is comfortable selling options, but you shouldn't let that keep you from taking advantage of this tool. The truth is, options can be as risky or conservative as you want them to be. It all depends on the strategy you're using.
My strategy is one of the safest around. In fact, I'm making a guarantee to new subscribers to show how low-risk options can be:
If you follow along with my trades and don't make money at least 90% of the time... I'll work for you for free. That's how confident I am.
I recently released a special report that will tell you everything you need to know, including how my readers are making about $568 a week from selling options. There's even a list of three questions to ask yourself to help determine if you're ready to trade options. Simply follow this link to check it out.
This week's dip was deep enough to trigger masses of stop orders and incite a bit of short-term panic among market participants.