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Hertz Soars

My short position in HTZ took it on the chin today.

music selection:  “Hologram” — Katie Herzig

I have shorted 554 shares of HTZ for a total “cost” basis of 8,000.30.  The thesis is subprime auto lending is creating a bubble in used car prices.  Since car rental companies can largely be thought of as leveraged plays on used car pricing, they are a good way to short the used car segment.

HTZ reported earnings today and it was a big whiff.  They missed EPS by a mile and fell short on the top line too.  Almost inexplicably, the market sent shares up 23% on the news.  There is another news item that seems to be in play.  Uber is getting out of the car leasing game and is pushing drivers with poor credit towards car rental companies recommending that lease older model rentals on an hourly basis.  The market thinks this could save the car rental companies from being ravaged by weak used auto pricing.

In total, I am down 1,733.48 on the position or 21.67%.  I still believe in this short but I will honor a 25% hard stop.  I’ll buy to close if shares close above 18.05.  They are 17.57 as of this writing.

CAR moved up in sympathy but only about 5%.  I have a lot more room to run in that short.  Also, I am sticking with my GM and F shorts.  Uber’s decision seems to offer little solace to the big automakers.  In addition, I have a short position in COF which is partly driven by their aggressive subprime auto lending.  Crashing used auto prices wipes out their collateral and puts them at risk.

Devour your prey raptors!

{ 5 comments… add one }
  • Chris B August 10, 2017, 3:38 pm

    I prefer to avoid investment themes / directional bets when possible – lost too much dough betting on sure things. I like the idea of options because of the possibility of making neutral bets or harvesting mathematical factors like time decay.

    Latest hare-brained idea:

    Last time I checked, HTZ has some high-yielding junk bonds. I wonder if you could essentially buy a protective put on the junk bond by maintaining a bearish position on the stock. After all, a default on the bond would send the stock to pennies, right? The costs of maintaining long puts would no doubt exceed the bond yield, but spreads might work in some cases. Thoughts?

    • The Lizard King August 10, 2017, 6:19 pm

      There is probably a strike that makes the math work on that. It might make as much sense to write straddles instead and bet on volatility instead of going directional? I still feel good about the theme of subprime auto lending being a bubble. It’s more a matter of whether I’m too early to the party.

  • Mr. ATM August 10, 2017, 9:06 pm

    I sold off my GM shares sometime ago at a nice profit. While I’m still stuck with F at a 24% unrealized loss. I think investing in a auto sector was a mistake as there is going to be continued pressure on car sales due growth in sharing economy.

    Mr. ATM

    • The Lizard King August 10, 2017, 9:15 pm

      Hate to hear you have an F hickey. Do you have a stop loss threshold defined?

  • Dividend Diplomats August 18, 2017, 2:31 pm

    Woah – did not catch that news in the industry. The Uber news is very interesting and you are right, could be a huge bump for rental car companies. I would be interested to see how this works and what kind of rates Hertz would charge. I would imagine the rate is not cheap given the potential risks. If Uber’s prices are too low, how could a driver make money with a big hourly rate payment from Hertz? Clearly these are questions that need to be answered at the moment and I’ll be interested in what they unfold.

    Bert

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