Christoph Amberger from Today’s Financial News found a different way to make money from reduced spending.
He suspects that parents straining under financial pressure will buy used cars instead of new ones for their children.
That means a company like CarMax (NYSE:KMX) should do incredibly well over the next year. Best part is its shares are still incredibly cheap at these prices and Christoph recommends snatching up more.

This is from Today’s Financial News:

Carmax (NYSE:KMX) has been soaring of late. Good that our HSC members had a running start on this American demographics play!

On Dec. 22, 2008, I issued an HSC Alert to our Hot Stock Confidential members that I called: “This stock is going to rebound in spring due to this U.S. demographic mega-trend”.

Since they safely got in at $7.46 a share (or better), I can make my learned opinion available to a wider circle… considering the stock closed at $9.14 today, after trading as high as $9.30.

Here’s what I wrote back then:

In 1989, the number of live births in the United States surpassed four million for the first time since 1964, one of the last years of the Baby Boom generation. Since then, for almost twenty years straight, four million Americans have been born every year.

They are called the Echo Boom generation and by now represent over 70 million consumers in the United States. This year, the four-million strong segment born in 1990 finished high school and scattered across the nation’s campuses. And every year hereafter, another four million will be hitting the road… literally… in cars provided to them by the most indulgent parental generation in history.

My own son, High School Class of 2011, is already dropping hints that it’s high time for him to take driving lessons.

I suspect he’ll start ogling cars in about six months.

If it weren’t for the effect of parental buying behavior on the businesses catering to this demographic, I’d be inclined to ignore his automotive ambition. But age-appropriate spending on these kids can be tracked by following the stock price highs of Disney, Toys ‘R’ Us, McDonald’s, Apple throughout the 1990s and the first decade of the 21st century.

And after Aladdin and Toy Story, Happy Meals, iPods and Abercrombie and Fitch pre-torn pants, a car seems to be as inevitable to this generation as the Amen at church.

Of course, there’s a recession going on. And few parents may go and buy little Pugsley a brand-spanking new Mustang as a graduation present. My bet is that, notwithstanding a glut of new hybrids and SUVs, a wholesome percentage of this generation will get their first car at a used car lot.

At a place like CarMax Inc. for example. Sure, KMX-NYSE has taken it on the chin, reporting a $21.9 million loss during the third quarter as sales sank 23 percent for the quarter.

The company has imposed a hiring freeze at its headquarters, will temporarily stop store growth, and reduce staffing by natural attrition.

Since CarMax’s financing arm was hurt by a $23.8 billion write-down in the value of the company’s bonds and $16 million for loan adjustments on bad loans, I doubt the company will be extending liberal credit.

But since bicycles are a pain, especially for cross-country drives, and part of the parental generation’ dream is to cut down on your second job as unpaid taxidrivers, I believe a combination of winter attrition, 16th and 18th birthdays, high school graduations, and college-bound freshmen will kick-start the used-car business in the second quarter of 2009.

Time to start looking at buying cheap now. KMX is currently selling at around $7.40 a share. I’d say buy under $8 and use price dips to and below $7 as additional buy-in opportunities in the coming weeks. I do believe 20-30% gains by May are a distinct possibility.

Well, today I advised our members to set a stop-loss at $9, to lock in better than 20% gains should the stock fall as unexpectedly as it rose today. I still think there’s some upside left.

After all, my son is now willing to barter: A driver’s license in exchange for the remaining merit badges required for Eagle Scout.

Can a used car be far away?

Source: Carmax is up over 20% on our HSC American demographics play!