Zacks Analyst Blog Highlights: Ford, CarMax, AutoNation, Apartment Investors and Equity Residential

CHICAGO--(BUSINESS WIRE)--Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Ford (NYSE: F), CarMax (NYSE: KMX), AutoNation (NYSE: AN), Apartment Investors (NYSE: AIV) and Equity Residential (NYSE: EQR).

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Here are highlights from Wednesday’s Analyst Blog:

CPI Up on Cars, Energy

The Consumer Price Index (CPI) for October rose by 0.3%, a little bit hotter than the 0.2% that was expected. If one strips out volatile food and energy prices to get the core consumer price index, prices were up 0.2%, also one tick higher than the 0.1% expected.

A rise in energy prices was not unexpected. Heck, one only has to see what the price of crude oil and natural gas have done over the last month or so. For the month, the price of energy rose 1.5% overall. The rise was sharpest among energy commodities, like gasoline and heating oil, which rose by 1.9%. Energy services, like electricity rose a more moderate -- but still steep -- 0.9%.

The rise in core consumer prices was a bit more of a surprise. However, the rising prices were very narrow, with almost all of the increases due to higher prices for cars and trucks, both new and used. For the month, the prices of new cars were up 1.6% while the prices for used cars jumped by 3.4%. That is very good news for Ford (NYSE: F) as well as indirectly for the U.S. taxpayer, since we are now major stockholders at both General Motors and Chrysler.

The increase for used cars is also beneficial for the car dealers like CarMax (NYSE: KMX) and AutoNation (NYSE: AN). The Cash for Clunkers program continues to reverberate through the economy, even though it ended over two months ago. Every car that was turned in under the program was destroyed (at least the engine was, other parts could be stripped and reused). This reduction in supply helped support prices of the remaining used cars. This is the third month in a row of sharply higher prices for used cars, coming on top of a 1.6% increase in September and a 1.9% increase in August. I suspect that this effect is likely to wear off in the near future.

On a year-over-year basis, the overall consumer price index is down 0.2%, while the core consumer price index is up 1.7%, both of which are historically very low. The huge decline in energy prices happened a year ago and is in the process of rolling off. Thus look for the headline consumer price index to start to outpace the core consumer price index in the months to come on a year-over-year basis.

The divergence could become very large. The reason is that a very large part of the index is for Shelter, and the biggest part of that is rent -- both the normal rent that is paid by people who do not own their own houses, and "owners equivalent rent" (OER) or what it would cost you to rent an identical house next door to where you are living now. OER is how the government measures housing prices for inflation; what happens to the actual price of houses is totally irrelevant when it comes to measuring inflation. Thus, measured inflation was very much under control, even as the price of houses were soaring during the housing bubble, and the CPI did not decline as the bubble was bursting.

Together, regular rent paid to landlords and OER make up over 30% of the total consumer price index, and almost 40% of the core consumer price index. The overall price of shelter was unchanged in October, the second month in a row it was unchanged. Regular rent fell by 0.1%, over the last three months it is down at a seasonally adjusted annual rate of 0.7%, and it is unchanged over the last six months.

Since most people own rather than rent where they live, OER has a much higher weight in the index (24.4% of the total index vs. 6.0%). It was unchanged on the month, is off by 0.3% over the last three months and up by just 0.2% over the last six months. However, if the reports from the big housing-oriented REIT’s like Apartment Investors (NYSE: AIV) and Equity Residential (NYSE: EQR) are to be believed, then the decline in regular rents is significantly understated.

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