CarMax, Inc (KMX), AutoNation, Inc. (AN): Driving to a Better Economy

CarMax saw 21 hedge funds long the stock going into the second quarter, which was a 25% decrease from the previous quarter. Markel Gayner Asset Management had the top position, worth some $213 million and making up 7.9% of its portfolio (see Markel’s newest picks).

The hedge fund interest in Group 1 was only 20 hedge funds heading into 2Q, but this was a 54% increase from the previous quarter. Clint Carlson had the largest position, but it was worth only $33 million (check out Carlson’s small cap stocks).

Bottom line

It’s no secret that auto retailers are expected to see an impressive uptick from pent-up demand and an improving economy; question is, which is the best industry player?

Based on its exposure to new car sales versus used cars, I tend to like AutoNation the best. AutoNation has been improving its return on equity, surpassing CarMax, Inc (NYSE:KMX) in mid-2012. AutoNation now boasts a near 20% ROE, compared to CarMAx’s 15.5%

What’s more is that on a price-to-earnings-to-growth (PEG) ratio basis, AutoNation is quite the growth-at-a-reasonable-price opportunity. AutoNation has a low 0.5 PEG, compared to Group 1’s 2.0 and CarMax’s 1.7.

As a result, I like AutoNation, Inc. (NYSE:AN) the best, but CarMax should continue to perform well. The positive for Group 1 investors is that it does pay a dividend yield, albeit only a modest 1% .

The article Driving to a Better Economy originally appeared on Fool.com and is written by Marshall Hargrave.

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends CarMax. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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