10 Best Auto and Truck Dealership Stocks to Buy

In this article, we will take a look at the 10 best auto and truck dealership stocks to buy now.

Used Car and Truck Prices Decline For The Ninth Consecutive Month

Used car and truck prices have continued their downward trajectory, marking the ninth consecutive month of decline. This latest development, revealed by the Bureau of Labor Statistics, makes a compelling case for investors eyeing the auto and truck dealership sector. As used vehicle prices recede, paving the way for increased affordability, the industry stands poised for growth and investor gains.

Based on the Consumer Price Index (CPI) report released on April 12, there was a month-over-month decline of 0.9% in used car and truck prices in March 2023. Furthermore, compared to the previous year, used car and truck prices fell 11.2% from March 2022. In contrast, new vehicle prices demonstrated a sequential increase of 0.4% month-over-month in March 2023, with a robust year-over-year growth of 6.1%.

The decreasing prices of used cars and trucks present advantages for the auto and truck dealership industry and investors. Affordable prices drive consumer demand, expanding the market to a broader range of buyers and resulting in increased sales volumes and revenue growth for dealerships. Moreover, the decline in used vehicle prices boosts consumer sentiment, as improved affordability increases confidence in making significant purchases, further bolstering the demand for vehicles.

Legendary Investor Sees “Pent-Up Demand” in Automobiles

On April 4, Mario Gabelli of GAMCO Investors appeared in an interview on CNBC where he discussed some sectors of the market he likes. Gabelli is optimistic about the auto sector and thinks “car sales will hold up” and “the consumer is in great shape”. Additionally, Gabelli likes industrials and defense spending. Mario Gabelli is bullish on the housing sector because he believes that there is a significant amount of demand that has accumulated over time and is yet to be fulfilled. Finally, Mario Gabelli thinks the auto industry is also an area of the economy with “pent-up demand”.

As the industry continues to navigate the evolving market landscape, the decline in used car and truck prices unlocks new opportunities. In light of the ongoing decline in used vehicle prices, the auto and truck dealership sector presents an enticing proposition for investors. With increased affordability, a diversified customer base, and the potential for sustained growth, dealership stocks are well-positioned to capitalize on these market dynamics and drive substantial returns for shareholders. We have compiled a list of the best auto and truck dealership stocks to buy now which include AutoNation, Inc. (NYSE:AN), CarMax, Inc. (NYSE:KMX), and Copart, Inc. (NASDAQ:CPRT). Let’s now discuss these stocks, among others, in detail below.

 Our Methodology

We used Yahoo Finance’s stock screener to find companies operating in the auto and truck dealership industry. We compiled our list and sourced each stock’s hedge fund sentiment from Insider Monkey proprietary database of roughly 900 elite money managers. We then picked the stocks that were the most popular among institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them.

Best Auto and Truck Dealership Stocks to Buy

10. CarGurus, Inc. (NASDAQ:CARG)

Number of Hedge Fund Holders: 21

On February 28, CarGurus, Inc. (NASDAQ:CARG) reported earnings for the fiscal fourth quarter of fiscal 2022. The company reported an EPS of $0.22 and outperformed expectations by $0.11. The company’s revenue for the quarter amounted to $286.74 million and beat Wall Street estimates by $5.34 million.

CarGurus, Inc. is on the rise. As of April 28, the stock has gained 14.41% on a year-to-date basis. The stock is one of the best auto and truck dealership stocks to buy now.

On March 1, Raymond James raised its price target on CarGurus, Inc. to $20 from $16 and maintained an Outperform rating on the shares.

CarGurus, Inc. was held by 21 institutional investors at the end of Q4 2022 that held positions worth $245 million in the company. As of December 31, PAR Capital Management is the top shareholder and has disclosed a stake worth $94 million.

Other auto and truck dealership stocks that hedge funds are heavily positioned in include AutoNation, Inc., CarMax, Inc., and Copart, Inc..

9. Sonic Automotive Inc. (NYSE:SAH)

Number of Hedge Fund Holders: 22

Sonic Automotive, Inc. (NYSE:SAH) is an American automotive retailer doing business through three segments: Franchised Dealerships, EchoPark, and Powersports. As of April 28, the stock is offering a forward dividend yield of 2.61% and the company has a TTM free cash flow of $179 million. Sonic Automotive Inc. is placed ninth among the best auto and truck dealership stocks to buy now.

Over the past 3 months, Sonic Automotive Inc. has received 2 Buy ratings and 1 Hold rating from Wall Street analysts. The stock has an average price target of $54.17, which implies an upside of 21.68% from current levels.

Sonic Automotive Inc. was spotted on 22 hedge funds’ portfolios at the end of the fourth quarter of 2022. These funds disclosed collective stakes worth $134 million in the company. As of December 31, Balyasny Asset Management is the most prominent shareholder in the company and has a position worth $23 million.

8. Penske Automotive Group, Inc. (NYSE:PAG)

Number of Hedge Fund Holders: 25

Penske Automotive Group, Inc. (NYSE:PAG) operates automotive and commercial truck dealerships in the United States and international markets. At the end of Q4 2022, 25 hedge funds were long Penske Automotive Group, Inc. and held stakes worth $320 million in the company. Of those, GAMCO Investors was the leading investor in the company and disclosed a position worth $53.7 million.

On April 26, Penske Automotive Group, Inc. posted strong earnings for the fiscal first quarter of 2023. The company reported an EPS of $4.31 and outperformed EPS expectations by $0.22. The company’s revenue for the quarter amounted to $7.34 billion, up 5.21% year over year and ahead of Wall Street consensus by $320.42 million. As of April 28, Penske Automotive Group, Inc. has returned 24.15% to investors over the past 6 months. The stock is one of the best auto and truck dealership stocks to buy now.

On February 9, Stephens analyst Rick Nelson raised his price target on Penske Automotive Group, Inc. to $155 from $140 and maintained an Overweight rating on the shares.

7. Asbury Automotive Group, Inc. (NYSE:ABG)

Number of Hedge Fund Holders: 26

Asbury Automotive Group, Inc. (NYSE:ABG) is a leading American automotive retailer. Over the past 3 months, the stock has received 3 Buy ratings and 1 Hold rating from Wall Street analysts. The stock’s average price target of $268.33 represents an upside of 38.70% from current levels.

As of April 28, Asbury Automotive Group, Inc. has gone up by 22.64% over the past 6 months. The stock is placed seventh on our list of the best auto and truck dealership stocks to buy now.

On April 25, Asbury Automotive Group, Inc. reported earnings for the fiscal first quarter of 2023. The company generated a revenue of $3.58 billion and reported an EPS of $8.37, outperforming EPS estimates by $0.38.

26 hedge funds held positions in Asbury Automotive Group, Inc. at the close of Q4 2022. The total value of these positions amounted to $1.26 billion. As of December 31, Impactive Capital is the dominant investor in the company and has a stake worth $394 million.

Here is what Right Tail Capital has to say about Asbury Automotive Group, Inc. in its Q1 2023 investor letter:

“Several positives have surfaced. I’ve developed a better understanding for why the publicly traded dealerships have been good investments over time. For example, Asbury Automotive Group and Lithia Motors (LAD) are up nearly 20x in the last 20 years. As Warren Buffett describes, the businesses require little capital. He says, “You have no receivables to speak of. You floor plan your inventory. You can lease your real estate…so you can have very little capital actually invested in the business…you can work on fairly narrow margins and still earn a high return on capital.” Not surprisingly, Berkshire Hathaway bought one of the largest privately owned dealerships in 2015. The industry has consolidated as total dealerships have shrunk from ~30K to ~17K. It seems reasonable to me that the larger, better run organizations have an opportunity to continue to take share.

A car dealership’s profit stream also resembles sausage making with several components combining to support a better finished product. Gross profits from selling new and used cars are usually 25-35% of the total company mix. Higher margin items like parts and service and finance and insurance make up the remainder. The largest chunk, parts and services, tends to be the least cyclical and franchise
dealerships seem well-positioned to grow this business in the years to come. Similar to sausage becoming a value-added product from several ingredients, these individual revenue streams combine to
add value to the overall car dealership while providing several services that consumers want.”

6. Group 1 Automotive, Inc. (NYSE:GPI)

Number of Hedge Fund Holders: 30

On February 21, JPMorgan analyst Rajat Gupta raised his price target on Group 1 Automotive, Inc. (NYSE:GPI) to $230 from $220 and reiterated an Overweight rating on the shares. As of April 28, the stock has surged 25.30% since the beginning of 2023 and is trading at a PE multiple of 4x.

On April 26, Group 1 Automotive, Inc. posted market-beating earnings for the first quarter of fiscal 2023. The company reported an EPS of $10.91 and beat EPS estimates by $1.03. The company’s revenue for the quarter amounted to $4.13 billion, up 7.43% year over year and ahead of Wall Street consensus by $206.47 million. Group 1 Automotive, Inc. is one of the best auto and truck dealership stocks to buy now.

Group 1 Automotive, Inc. was a part of 30 investors’ portfolios at the close of the fourth quarter of 2022. These funds held collective positions worth $313 million in the company. As of December 31, Lakewood Capital Management is the top investor and has a stake worth $59.8 million.

In addition to Group 1 Automotive, Inc., other auto and truck dealership stocks that are popular among elite hedge funds include AutoNation, Inc., CarMax, Inc., and Copart, Inc..

5. AutoNation, Inc. (NYSE:AN)

Number of Hedge Fund Holders: 34

AutoNation, Inc. was spotted on 34 investors’ portfolios at the end of Q4 2022 that held positions worth $653 million in the company. As of December 31, AQR Capital Management is the largest shareholder and has a position worth $109 million.

Wall Street sees upside to AutoNation, Inc.. This April, Guggenheim raised his price target on AutoNation, Inc. to $184 from $181 and maintained a Buy rating on the shares.

On April 20, AutoNation, Inc. announced earnings for the fiscal first quarter of 2023. The company’s revenue for the quarter amounted to $6.40 billion and the company reported an EPS of $6.05, outperforming EPS expectations by $0.31. AutoNation, Inc. has returned 23.88% to investors over the past 6 months and is placed fifth among the best auto and truck dealership stocks to buy now.

4. Carvana Co. (NYSE:CVNA)

Number of Hedge Fund Holders: 36

Carvana Co. (NYSE:CVNA) is an American auto dealership company that operates an e-commerce platform for buying and selling used cars. As of April 28, the stock has returned 49.89% to investors on a year-to-date basis. Carvana Co. is one of the best auto and truck dealership stocks to buy now, according to hedge funds.

Over the past 3 months, Carvana Co. has received 2 Buy ratings and 13 Hold ratings from Wall Street analysts. The stock has an average price target of $10.27, which implies an upside of 47.98% from current levels.

Carvana Co. was a part of 36 hedge funds’ portfolios at the close of the fourth quarter of 2022. These funds held positions worth $209 million in the company. As of December 31, Spruce House Investment Management is the most prominent investor in the company and holds a position worth $47 million.

ClearBridge Investments made the following comment about Carvana Co. in its Q4 2022 investor letter:

“We exited our position in online automotive retailer Carvana Co. (NYSE:CVNA), in the consumer discretionary sector. After being one of the portfolio’s top performers over the last few years, Carvana has struggled due to a cyclical downtrend in used car volumes and prices as well as investor concern about the company’s ability to fund future growth. We felt the combination of growing macro uncertainty combined with weakening fundamentals justified finally closing the position.”

3. CarMax, Inc. (NYSE:KMX)

Number of Hedge Fund Holders: 38

On April 11, CarMax, Inc. posted strong earnings for the fiscal fourth quarter of 2023. The company generated a revenue of $5.72 billion and reported earnings per share of $0.44, outperforming EPS expectations by $0.20. CarMax, Inc. is placed third on our list of the best auto and truck dealership stocks to buy now.

On April 14, Oppenheimer analyst Brian Nagel raised his price target on CarMax, Inc. to $85 from $75 and reiterated an Outperform rating on the shares. As of April 28, the stock has gained 15.48% year to date.

CarMax, Inc. was held by 38 hedge funds at the close of Q4 2022. These funds disclosed positions worth $932 million in the company. As of December 31, Diamond Hill Capital is the top shareholder and has a stake worth $327 million.

Alphyn Capital Management made the following comment about CarMax, Inc. in its Q1 2023 investor letter:

“Despite contributing positively to the portfolio, CarMax, Inc. (NYSE:KMX)’s performance ranked among the bottom five positions during a period when most of our holdings experienced gains.

CarMax suffers from difficult macro conditions coinciding with increased investment as car retail is increasingly moving online.

High prices (stemming from COVID-induced supply constraints on new cars and increased demand due to stimulus money filtered down to the used car market) have impacted used car affordability. Meanwhile, recent interest rate hikes have worsened the situation. CarMax has surrendered some market share to maintain gross margins in this more challenging market, while CarMax Auto Finance (CAF), which generates profits from the spread between auto loan rates charged to consumers and rates paid in securitization markets, has faced squeezed margins…’’ (Click here to read the full text)

2. Lithia Motors, Inc. (NYSE:LAD) 

Number of Hedge Fund Holders: 40

Wall Street is bullish on Lithia Motors, Inc. (NYSE:LAD). This April, Guggenheim analyst Jonathan Elias revised his price target on Lithia Motors, Inc. to $320 from $332 and maintained a Buy rating on the shares.

On April 19, Lithia Motors, Inc. announced earnings for the first quarter of fiscal 2023. The company reported an EPS of $8.44 and generated a revenue of $6.97 billion, up 4% year over year. As of April 28, the stock has gained 11.48% over the past 6 months and is trading at a PE multiple of 5x. Lithia Motors, Inc. is ranked among the best auto and truck dealership stocks to buy now.

At the end of Q4 2022, 40 hedge funds were long Lithia Motors, Inc. and held stakes worth $1.5 billion in the company. Of those, Abrams Capital Management was the leading investor in the company and disclosed a position worth $481 million.

Here is what Right Tail Capital had to say about Lithia Motors, Inc. in its Q1 2023 investor letter:

“The original research premise fit right into Right Tail’s wheelhouse: a set of good businesses trading at attractive long-term valuations. Valuations look inexpensive at mid to high single digit multiples of earnings. Historically, these businesses have traded at 10-15x P/E multiples despite having more leverage and holding more inventory than they do today. In some ways, the historical multiples feel appropriate given their delicate relationships with manufacturers and cyclicality; on the other hand, these businesses have produced solid mid-teens returns with attractive reinvestment opportunities suggesting they are better than average companies. Adding another wrinkle to the puzzle, these businesses have over-earned the last few years due to Covid (car shortages, consumers flush with cash, etc.).

As I began the work, the compelling return potential warranted additional research. Lithia Motors (LAD), for example, has laid out a 2025 earnings per share target of $55-60. If the company reaches $55 in earnings and trades at a 12x P/E, we’d have a stock price of $660 – this would be a triple from today’s prices and produce a ~45% IRR over 3 years. The businesses are also producing lots of cash currently (LAD has earned ~$40 per share the last few years) creating additional capital allocation optionality.”

1. Copart, Inc. (NASDAQ:CPRT)

Number of Hedge Fund Holders: 48

As of April 28, Copart, Inc. has returned 37.45% to investors over the past 6 months. The stock is the best auto and truck dealership stock to buy now according to hedge funds.

This February, Guggenheim analyst Jonathan Elias raised his price target on Copart, Inc. to $82 from $75 and maintained a Buy rating on the shares.

48 hedge funds disclosed having stakes in Copart, Inc. at the close of Q4 2022. The total value of these stakes amounted to $799 million. As of December 31, Point72 Asset Management is the dominant stockholder in the company and has a stake worth $155 million.

Madison Investments made the following comment about Copart, Inc. in its Q1 2023 investor letter:

“Despite being long-time admirers of both its business model and top-notch executive team, Copart, Inc. (NASDAQ:CPRT) continues to surprise us with its resilient revenue and profits even in the face of various headwinds in the salvage car market. One positive factor is that high used car prices are helping to prop up salvage car auction values, which prop up Copart revenues. Even as unit growth in its core business remains challenged, the company is finding ways to grow in newer, related areas.”

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This article is originally published at Insider Monkey.