Turning Lemons Into Lemonade By Spencer Jakab

U.S. trade policy via social media has refocused on a new target: Canada . That country's currency weakened and, unlike Wednesday's announcement of levies on Brazil, investors elsewhere aren't taking it in stride. European stocks are falling and U.S. futures point to a weaker open.

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Would you buy a used car from this man?

Hedge fund manager Bill Ackman unveiled a bold bet in mid-April -a large stake in auto rental firm Hertz . With consumer and executive confidence plunging following President Trump's Liberation Day tariffs, it seemed like an odd time to invest in a company reliant on tourism and business travel.

But tariffs were precisely the point. Even a recession wouldn't necessarily have been negative. Ackman explained that Hertz owned more than half a million vehicles worth about $12 billion. With tariffs making new cars more expensive, its lightly used ones would be worth more. A 10% jump was equivalent to half of Hertz's market value.

Hertz stock surged and has held onto those gains three months later, up 118%. Not every company tied to used cars reaped a quick windfall, but some could benefit over months or years.

Periods of weak new car sales and rising used values boost businesses that help people maintain older vehicles. It makes more sense to sink money into your existing one if you can't afford, or even find, a new one.

For example, America's two leading auto-parts retailers, AutoZone and O'Reilly Automotive , beat the S&P 500 index by 63 and 55 percentage points, respectively, during the severe 18-month recession that ended in June 2009. They might have done even better had the "Cash for Clunkers" program not taken several hundred thousand old cars off the road.

More recently, U.S. vehicle sales rebounded from the initial Covid emergency to more than 18 million on a seasonally adjusted annualized basis by April 2021. Americans would have kept on buying, but supply chain snafus made new cars hard to find. Sales fell as low as an annualized 12.7 million by that September.

Then, as supply recovered, Fed interest-rate hikes pinched sales the following year. Between April 2021 and December 2022, AutoZone and O'Reilly beat the S&P 500 by 79 and 54 percentage points, respectively.

Tariffs could present a similar opportunity: June's Manheim Used Vehicle Value Index registered the largest year-over-year increase since August 2022. New-car sales surged to get ahead of tariffs in March and April, but have fallen sharply since then . There also are relatively few cars coming off of leases now.

Consensus earnings estimates for the two retailers and Hertz have come down slightly this year. But investors, including Ackman, are looking past the immediate hit from tariffs and consumer uncertainty.

Analysts are taking note, too. The highest proportion have "buy" ratings on O'Reilly since 2017 and the highest in at least 20 years on AutoZone, according to FactSet.

There's still plenty of gas in the tank.

Stocks I'm Watching

Levi Strauss : The jeans maker posted strong results for the first half of the year and boosted its annual outlook late Thursday . Shares gained around 7% in premarket trading.

BP : The energy company anticipates up to $1.5 billion in after-tax impairment charges from lower oil and gas prices. Shares gained 2.5% in London, however.

Unilever : The company appointed a new CEO for Ben & Jerry's , escalating a long-standing dispute with the ice-cream brand over social activism.

Coinbase , MicroStrategy : The two crypto-sensitive stocks rose in premarket trading after bitcoin reached a record high .

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About Me

I've been musing about finance for more than 30 years, including editing The Wall Street Journal's Heard on the Street column for a decade, writing two investing books and running a team of stock analysts at a global investment bank.

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July 11, 2025 06:40 ET (10:40 GMT)

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