5 Best Used Car Stocks To Buy According to Hedge Funds

3. CarMax, Inc (NYSE:KMX)

Market cap as of March 24: $9.08 Billion
Number of Hedge Fund Holders: 38

CarMax, Inc. (NYSE:KMX) is a U.S.-based company that sells used vehicles through its 240 locations. The company has two segments: CarMax Sales Operations and CarMax Auto Finance. In the previous year, the company sold over 900,000 cars to consumers.

CarMax, Inc. (NYSE:KMX), a major player in the used-car market, experienced a decline in sales and net income in the three months ending in November, with vehicle sales falling 21% to 180,000 and net income dropping 86% to $37.6 million. CarMax, Inc. (NYSE:KMX) is being cautious in acquiring cars and trucks due to declining prices, having purchased 40% fewer vehicles in its most recent quarter compared to the previous year.

JPMorgan analyst Rajat Gupta reduced his price target on CarMax, Inc. (NYSE:KMX) from $60 to $55 and maintained an ‘Underweight’ rating on the stock. He expects CarMax’s fiscal Q4 results to be below consensus due to continued challenges in the used car market, with high prices and rising rates affecting demand.

The number of hedge funds tracked by Insider Monkey with interests in CarMax, Inc (NYSE:KMX) increased from 25 hedge funds in the third quarter to 38 hedge funds in the fourth quarter.

Weitz Investment Management commented on CarMax, Inc. (NYSE:KMX) in its fourth quarter 2022 investor letter:

“Unfortunately, the performance story of the year is told by the Fund’s detractors. Higher financing costs and volatile vehicle prices have wreaked havoc on all used car sellers, but CarMax, Inc. (NYSE:KMX) shares have been doubly hit as management continues to invest in capabilities that improve the used car buying experience both online and “on the lot.”

Meta, Alphabet, Amazon and CarMax were all top detractors for the quarter and calendar year periods (FIS and Liberty Broadband, respectively, complete the quarterly and calendar-year detractor lists.) To varying degrees, each is managing through cyclical challenges during a period of substantial investor pessimism. Drawdowns of this magnitude are painful, and it may be prudent for management to moderate the pace of some investments, but we remain encouraged by their long-term focus. In the short run, cutting spending indiscriminately to “defend earnings” may lessen the pain of a drawdown, but it seldom grows a company’s business value — the ultimate prize. We added to both CarMax and Meta on weakness, and all four remain core holdings.”