What Buffett Sees in CarMax

The auto business sure isn't burning rubber on Wall Street. But CarMax (KMX), the largest U.S. retailer of used cars, has caught the eye of Warren Buffett, who in February upped his stake to 9.6% from 6.4%, for a total of 21 million shares, worth about $396 million. What's so hot about CarMax? It's famous for its low-price, no-haggle sales style. It operates 88 superstores in 41 states. CarMax has only a 2% share of the market. "But we think it could become the Wal-Mart (WMT) for cars" as it expands its share, says Edwin Walczak of Vontobel Asset Management, which owns stock. Earnings have grown at 28% annually for the past six years, he notes. Bradley Thomas of Lehman Brothers (LEH) says CarMax's "long-term growth story is intact." The stock, now at 20.02, is down from 27 a year ago. Thomas' 12-month target is 25.

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