Credit Acceptance Corporation (CACC)

Credit Acceptance Corporation (CACC).  This is an auto finance company. It mainly provides loans to sub-prime borrowers purchasing automobiles. The company’s model is unique in the sense that it partners directly with auto dealers rather than purchase a loan which the dealer originates. CACC structures the deal in such a way that both the interests of the dealer and CACC are aligned and both receive upside if the loan does well. Therefore, CACC’s risk levels are much lower. Additionally, the current market downturn will likely weed out weaker players who have been under-pricing loans and provide a long-term growth runway for CACC.

The long term monthly chart for CACC shows a clear and consistent uptrend which sustained until the year 2019. For about a year in 2019 and early 2020, the stock declined from $500 to $200, a drop of 60%. The fall in price took the price below an important support level at $377.

Starting April 2020, however, the stock has made major gains. It has risen by more than 100% in the span of 3 months. The price has also gone back above the $377 support level. The next likely target is $510, which acted as a resistance during the previous swing. A long position can, therefore, be initiated with a stop loss around $350.

Positions taken today at $415.55 with a cautious stop loss -51% below at  $201. Short term profits could be taken at the top of the range at $540 giving a profit of 30%