Morning Watchlist: Sunday Edition
A quick note from Behind the Markets
It's Sunday morning, and for the first time in a month, the calendar isn't pointing a cannon at us. The Fed hiked Wednesday. Then, as we went to press Friday morning, Tokyo delivered the week's second hike: the Bank of Japan raised its rate to 1.25%, the highest in 31 years — and the yen weakened anyway, sliding toward 155 to the dollar. A 90%-priced hike, we wrote last Sunday, is an entrance fee, not an edge.
The week ahead is quiet by design — no Fed meeting, no CPI, no jobs report. When the macro calendar goes silent, the microphone passes to companies, and this week to diplomats. Three stories this morning. Three pairings. Let's get into it.
1) The Oldest Cars in America Visit Their Accountant
Tuesday morning, AutoZone reports fiscal fourth-quarter earnings, and Wall Street expects about $54 of earnings per share. Not a typo — the company has retired its own shares so relentlessly, down to about 16 million remaining, that one share now earns in a quarter what many whole stocks cost.
Here's the setup underneath. The average American vehicle is about 12.8 years old at the most recent industry count — a record, and it has done nothing but climb for years. Add 7% car loans, tariffs pushing new-car stickers higher, and record prices at the pump, and almost nobody is trading up. Everybody is fixing what's already in the driveway.
That should be paradise for the parts aisle. And yet AutoZone closed Thursday at $2,844 — a whisker above its 52-week low, roughly a third below its high, at about 19 times earnings — marked down this year on tariffed parts costs and a strained do-it-yourself customer. Tuesday we find out whether the markdown was about the aisle, or just about the mood.
We're not pairing with the headline name.
The pairing: LKQ (LKQ) — Buy
LKQ runs North America's largest network of recycled and alternative auto parts — the used-textbook store next door to the campus bookstore. Same part, a fraction of the sticker, and enrollment keeps rising because the fleet keeps aging. The recycled part is the trade-down migration on wheels.
The engine is already turning. Last quarter, North American organic revenue grew for the first time in nine quarters, and alternative parts made up a record 40% of collision repairs, because insurance carriers — the people actually paying most repair bills — are steering work toward cheaper parts and the shops that use them. So why is the stock at $23.83, near a 52-week low? Europe. A botched software rollout in Germany cost roughly $140 million of revenue in a single quarter and forced a full-year guidance cut — a self-inflicted, fixable wound priced like a permanent one.
The result: about 8 times next year's expected earnings. The S&P 500: 21 times. While you wait, the dividend pays about 5%, and nine analysts rate it Buy with an average target of $32.50. The honest risks: the German mess lingering into next year, North America slipping back to shrinking, and insurers writing off more damaged cars entirely instead of repairing them. And if AutoZone stumbles Tuesday, the whole aisle wears it for a day — the Casey's-and-Murphy lesson from two weeks ago.
2) The Week Diplomacy Gets a Microphone
Tuesday, a few miles north of the New York Stock Exchange, the UN General Assembly's general debate opens — the one week a year when nearly every head of state stands at the same podium, running through the 28th. They arrive with a war on: the Gulf conflict has kept Brent crude above $100 for much of September, and only Thursday did oil ease back toward $100 as Saudi Arabia's damaged East–West pipeline moved toward restoration.
Now look at our own ledger. Magnolia, Darling, SLB — nearly every energy call we've made this quarter carries the same named risk, the one we call the cheerful loss: de-escalation. Peace, or even a credible handshake, deflates the war premium and marks down the oil shelf. This week is the scheduled venue for exactly that kind of headline. So we're pairing with the other side of our own trade.
The pairing: Copa Holdings (CPA) — Buy
Copa is Panama's airline — the bus terminal of the Americas. Its hub sits at the isthmus where north–south traffic changes planes, a moat made of geography. And business is booming at war prices: August passenger traffic grew 16.8% from a year ago, trailing-twelve-month revenue is up about 15%, and fifteen analysts rate it Strong Buy with an average target of $178.73 against Thursday's close of $130.98.
Here's the part that makes it this week's pairing: Copa famously does not hedge fuel. No gas card — it pays the pump price, every day. That stung all the way up, which is partly why the stock costs about 7 times next year's expected earnings with a 5.2% dividend yield. But it also means any diplomatic surprise flows straight to the profit line the next morning. We'd rather own the stock that gets paid if peace breaks out than merely hope it doesn't.
A word from our own scar tissue: we watched Alaska Air all quarter waiting for cheap fuel that never came — on September 1st the named risk arrived instead of the entrance. Copa isn't waiting on cheap fuel. It grew double digits with Brent in the nineties and hundreds; falling crude is the free option, not the thesis. What would prove us wrong: escalation sending Brent toward $120 (the unhedged bill cuts both ways, immediately), a Latin American currency shock, or anything that dents the hub.
3) Three Doors Into the Same Club
Thursday after the close, Costco reports fiscal fourth-quarter results — about $6.55 a share expected on roughly $94.9 billion of revenue, up double digits again. Watch three dials: comparable sales excluding gas (running 6.6% in July), traffic (3.6%), and the renewal rate (92.2%). Oppenheimer warns the consensus number may be a best-case scenario once tariff refunds wash out.
Regular readers know we already have money on this game. On September 6th we said Sell Costco (for holders) at roughly 56 times earnings, and Buy BJ's at about 19 times next year's — same business model, one-third the price. Since then Costco's multiple has deflated toward 48 times while the business kept growing — the price call working exactly as written. Both verdicts stand, and Thursday night is their referee.
But there's a third door into the club aisle, and almost nobody covers it.
The pairing: PriceSmart (PSMT) — Watch
PriceSmart runs membership warehouse clubs across Central America, the Caribbean, and Colombia — Costco's recipe in countries Costco doesn't operate, with Chile next on the expansion map. The model travels: comparable sales grew 10.7% last quarter, earnings per share are up 9.6% over the past year, and revenue is compounding at 10%. Just three analysts cover the $5.1 billion company. The crowd isn't wrong about this one — the crowd hasn't shown up.
So why Watch and not Buy? Price, same as ever. At $169.51 on the latest print we could verify, PriceSmart costs about 30 times next year's expected earnings — a Costco-flavored multiple without the Costco flywheel — and the average analyst target sits at $166, below the stock. Our entrance: a pullback toward the $140s, call it the mid-20s on next year's numbers, or the late-October fiscal report proving the double-digit comps durable. What kills it: a Latin American currency shock, or comps decelerating while the multiple is still dressed for double digits.
Before You Go
That's the watchlist for next week: the recycled-parts network under a marked-down aisle, the unhedged airline on the other side of our own oil trade, and the club membership we'll buy on markdown. One theme, as always: the best opportunities stand one step behind the headline.
Your map. Monday, The Trade Desk opens outside the S&P 500 for the first time in 14 months — Friday's quadruple-witching close landed after our press time, so Monday's tape decides whether the washout entrance we named ever printed; our rule stands. Tuesday: AutoZone and KB Home report, the general debate opens, and the first post-hike Fed speakers fan out. Wednesday: flash PMIs and Cintas. Thursday: new home sales, jobless claims — and the week's biggest moment, Costco after the closing bell, with our September 6th Sell-and-Buy pair both listening. Friday: durable goods and final consumer sentiment. Circle the following week too: Canada's import ban bites September 29th, then Micron and the Fed's preferred inflation gauge land September 30th.
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Written by Behind the Markets