3 Reasons to Buy Car Rental Stocks
There are three major reasons why publicly traded companies that rent cars and trucks such as Avis Budget (NYSE: CAR), Ryder Systems (NYSE: R) and Hertz Global (NYSE: HTZ) should continue to reward shareholders well into the future.
The business model is peerless and is a good place to start.
Avis Budget, Ryder Systems, and Hertz Global buy motor vehicles at a volume discount. The base rental fees the first year just about pay for the cost of the car, truck or van, which is then sold. The fees earned from selling insurance, ski racks and others items are additional profits. Don't forget the outsized charges for bring the car back late or with the tank less than full!
What is not to like about that for investors?
Making these companies even more appealing as long-term holdings are the evolving demographics. More and more young people want to live in cities. Urban living is hostile to owning a motor vehicle. Moreover, why pay to have to drive somewhere in the suburbs when you can walk to it in the city? Therefore, there will be more renting cars and trucks than owning.
There are societal trends at play here, too.
In a recent article on Benzinga, Bruce Kennedy pointed out that, "Academics who monitor economic behavior, meanwhile, believe the combination of new, rapidly-developing technologies and economic uncertainty have given the rental culture momentum. 'As upgrade product cycles start to get shorter and shorter, renting or short-term ownership become more important to staying on top of current technology,' says Keith Chen, an associate professor of economics at UCLA's Anderson School of Management, in an email to Benzinga. Chen also notes how new electronic markets are giving more consumers access to luxury goods at reduced prices, which in turn makes short-term ownership and rental options more viable."
The appeal of the business model, evolving demographics and favorable societal forces at work can certainly be seen in the performance of the stocks for Avis, Hertz and Ryder.
For 2013, Avis Budget is up more than 80 percent. Since the first of the year, Hertz has increased in share value by over 50 percent. During the same period, Ryder Systems has jumped by better than 40 percent. The same three factors that led to such bullish performances this year should still take hold well into the future.
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