Pairs Trade - AZO a sell and AAP a buy Look at the history of these two stocks going back to 2011. They are identical in performance and yet AAP reports its earnings FIRST and the stock tanked 30 points or 15% last month. Autozone reports on Dec 8th and could face a similar fate as AAP since they are in the same business.
Lately, new car sales have taken off to the upside and at some point investors could back off on the sky-high valuations of these stocks that have been delivering steady and consistent profits gains over the years.
It's never easy to call the end of a trend, but I'm thinking this is a low risk trade to be long AAP and short AZO into earnings next week. You can manage risk best using options to set up this trade.
Target 10% down on AZO relative to AAP. Your profit could come from one side or the other, but you would think that the catalyst would be the earnings report on 12/8/2015.
Stay tuned.
Tim
AZO 776.28 last
AAP 159.94 last
