In this article we will take a look at the 5 best auto stocks to invest in. If you want to read our detailed analysis of the automotive industry, go directly to the 11 Best Auto Stocks To Invest In.
5. CarMax Inc. (NYSE:KMX)
Number of Hedge Fund Holders: 39
Based in Virginia, CarMax Inc. (NYSE:KMX) is a retailer of used vehicles, and engages in wholesale vehicle auctions. Ranked fifth on the list of the 11 best auto stocks to invest in, CarMax Inc. (NYSE:KMX) has a market capitalization of $20.72 billion.
For the second quarter of 2021, the company reported earnings per share at $1.79, beating market estimates by $0.68. The revenue for the quarter was reported at $5.37 billion, crossing forecast predictions by $294.06 million.
By the end of the second quarter of 2021, 39 hedge funds tracked by Insider Monkey’s database held stakes amounting to $1.6 billion in CarMax Inc. (NYSE:KMX).
On October 1, RBC Capital analyst Steven Shemesh lowered the his price target on CarMax Inc. (NYSE:KMX) to $156 from $160 but kept an Outperform rating on the shares, noting that the second quarter results of the company were “mixed”.
In the Q2 2021 investor letter of Giverny Capital, the fund mentioned their optimism regarding CarMax Inc. (NYSE:KMX), and the firm’s outstanding earnings report for the second quarter. Here is what the fund said:
“We’re quite optimistic about Carmax, our second largest position. For several years, investors have gravitated to a thesis that a handful of start-ups that sell used cars in an online-only format will end up with a lower cost structure than Carmax. This even though Carmax appears today to have lower costs to buy used cars for its inventory, recondition them for resale and transport them to stores – all problems that are not solved by a good web site. Carmax also amortizes its national advertising over a much larger sales base than competitors, giving it lower marketing expense per vehicle.
Nevertheless, Carmax was slow to respond to the emerging market for online car shopping. The good news is that it ultimately responded with vigor. Over the past few years it has seen operating margins contract as it invested in an omnichannel capability that lets customers buy fully online or do a portion of the transaction online and a portion in the store. Importantly, the customer chooses exactly which parts of the transaction to complete online or in store.
Now, it may be harvesting rewards. Carmax’s most recent earnings report was eye-popping. With its omnichannel transformation complete, Carmax reported that comparable sales rose 99% (on a pandemic-depressed comparison) in its May quarter, far ahead of expectations. The two-year comparable sales increase was 16%. Profit margins expanded and Carmax even suspended a test of lower prices in select markets, which was meant to measure elasticity of demand, because it was having no trouble selling cars at higher prices.
Carmax reported that 75% of transactions in the May quarter involved a customer completing a portion of the deal online, but only 8% were completed entirely online. Customers clearly like doing some parts of a transaction online and some parts in person. Importantly, Carmax now is the country’s largest online buyer of used autos from consumers, meaning it is acquiring inventory efficiently in the channel that the start-ups ostensibly were going to dominate.
Since releasing its earnings report in late June, Carmax shares are up sharply. Yet the stock’s high-teens PE multiple remains below the S&P average for a business with outstanding growth prospects and a likely return on equity above 25% this year. The used car market, like every other market, is overheated and will cool off at some point. But we feel good about our second-largest holding.”
4. Magna International, Inc. (NYSE:MGA)
Number of Hedge Fund Holders: 39
Magna International, Inc. (NYSE:MGA) is a manufacturing company based in Canada, that produces and supplies automotive systems, modules and components. Ranked fourth on the list of the 11 best auto stocks to invest in, Magna International, Inc. (NYSE:MGA) has a market capitalization of $23.07 billion.
The company issued its quarterly earnings report for the second quarter of 2021 on August 6, with reported earnings per share at $1.40, missing estimates by $0.01. Additionally, the reported revenues of $9.03 billion fell short of the market predictions by $248.8 million.
On September 26, Goldman Sachs analyst Mark DeLaney lowered the his price target on Magna International, Inc. (NYSE:MGA) to $102 from $105 and kept a Buy rating on the shares.
At the end of the second quarter of 2021, 39 hedge funds in the database of Insider Monkey held stakes worth over $576 million in Magna International, Inc. (NYSE:MGA), up from 34 hedge funds in the preceding quarter that held stakes worth more than $671.7 million.
3. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 55
Ford Motor Company (NYSE:F) is a multinational automobile manufacturer. Based in Michigan, the company engages in the sales of both, commercial and luxury vehicles through its brand names, Ford and Lincoln. The automobile company ranks third on our list of the 11 best auto stocks to invest in.
At the end of the second quarter of 2021, 55 hedge funds in the database of Insider Monkey held stakes worth $2.10 billion in Ford Motor Company (NYSE:F). This is compared to 49 hedge funds in the preceding quarter with stakes worth $2.19 billion.
For the second quarter of 2021, Ford Motor Company (NYSE:F) declared its EPS at $0.13, beating market predictions by $0.10. In addition to the EPS, the company reported revenues of $24.13 billion, surpassing forecast estimates by $1.13 billion.
On July 16, BofA analyst John Murphy raised his price target on Ford Motor Company (NYSE:F) to $18, from $17, and kept a Buy rating on the company shares.
2. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 60
Tesla, Inc. (NASDAQ:TSLA), known simply as Tesla, is famous for its design and manufacture of electric vehicles and clean sustainable energy solution and products, including solar panels and battery energy storage units, among others. The company has a market capitalization of $767 billion, and ranks second on our list of the 11 best auto stocks to invest in.
In the second quarter of 2021, Tesla, Inc. (NASDAQ:TSLA) reported an EPS of $1.45, beating estimates by $0.47. The company’s revenue in the quarter came in at $11.96 billion, an increase of 98.1% on a year-over-year basis, beating revenue estimates by $559.33 million.
At the end of the second quarter of 2021, 60 hedge funds in the database of Insider Monkey held stakes worth $9.29 billion in Tesla, Inc. (NASDAQ:TSLA).
On September 17, Wedbush analyst Daniel Ives kept an Outperform rating on Tesla, Inc. (NASDAQ:TSLA) with a price target of $1,000 on its shares.
In the Q2 2021 investor letter of Worm Capital, the fund stated their belief in Tesla, Inc. (NASDAQ:TSLA)’s long-term performance, despite underperforming in the second quarter. Here is what the fund said:
“Tesla underperformed in the quarter, but we maintain our high conviction in the long-term thesis on each business model. Much like art or writing, investment research is a continuous process—it never really ends. Prices can move in either direction in any given quarter, but our advantage often comes from knowing the businesses so well that short-term fluctuations in pricing shouldn’t affect our decision-making. On high conviction positions, this patience is often rewarded, which is why research is so valuable to our process…
..Tesla is in a class of its own. What many in the market seem to (still) not understand is that Tesla is not a car company so much as a complex manufacturing firm—with significant recurring software potential—growing, in our view, at a targeted rate of 50-100% YoY over the next several years. Unlike any other automotive firm in existence today, Tesla alone is a vertically integrated hardware and software business developing state-of-the-art manufacturing techniques that will revolutionize the auto industry (i.e. its Giga Presses, 4680 cells, etc.). It is a generational company and we anticipate it will eventually be the largest company in the world. Many of the conventional narratives around competition displacing Tesla’s lead are fundamentally flawed, and the many headlines surrounding Tesla’s approach to autonomy are frustratingly superficial. (As an aside, we highly recommend watching Andrej Karpathy’s, Tesla’s head of AI, his recent presentation from June: “Tesla details its self-driving Supercomputer that will bring in the Dojo era”)”
1. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 86
General Motors Company (NYSE:GM) is a multinational automotive corporation that designs and manufactures automobiles, through the multiple brands the company owns, including Chevrolet, GMC and Cadillac. The Michigan-based company has a market capitalization of $77.13 billion, and is ranked first on the list of the 11 best auto stocks to invest in.
At the end of the second quarter of 2021, 86 hedge funds in the database of Insider Monkey held stakes worth $7.41 billion in General Motors Company (NYSE:GM). The number of hedge funds that held stakes in the automotive manufacturing company remained the same for the first and second quarters of 2021.
On August 4, General Motors Company (NYSE:GM) issued its quarterly earnings report for the second quarter of 2021, with reported earnings per share at $1.97, crossing estimates by $0.14. Additionally, the company reported revenues at $34.17 billion, an increase of 103.64% on a year-over-year basis, surpassing predicted revenues by $4.49 billion.
On September 26, Goldman Sachs analyst Mark Delaney lowered the firm’s price target on General Motors Company (NYSE:GM) to $59 from $62 but kept a Buy rating on the shares.
Junto Investments, in its Q4 2020 investor letter, stated that the value of General Motors Company (NYSE:GM) is far greater than is reflected on the markets. Here is what the fund had to say:
“General Motors was the biggest gainer. We managed to buy it at a screamingly cheap price in the middle of March. A lot of interesting news has emerged about GM recently, including the new electric product delivery system BrightDrop and GM Cruise’s team-up with Microsoft Azure to commercialize self-driving cars in 2021. GM’s intrinsic value is crystallizing and the company is worth a whole lot more than is still reflected in the market.”
You can also take a peek at 12 Best Big Tech Stocks to Buy Right Now and 10 Stocks That Just Received Sell Rating from Analysts.
