5 Best Used Car Stocks To Buy According to Hedge Funds

2. Lithia Motors (NYSE:LAD)

Market cap as of March 24: $5.77 Billion
Number of Hedge Fund Holders: 40

Lithia Motors, Inc. (NYSE:LAD) is a major US automotive group with 282 stores in 28 states, offering 48 brands of new vehicles and all brands of used cars. One of LAD’s competitive advantages is that it also provides services such as auto financing, giving customers an advantage in finding their ideal vehicle.

Lithia Motors, Inc. (NYSE:LAD) recently acquired Jardine Motors Group in the UK, adding over $2.1 billion in annualized revenue to its expanding portfolio. Lithia aims to generate $50 billion in revenues and $55-$60 in earnings per share by 2025 through strategic acquisitions. With a diversified product mix and multiple streams of income, the company is well-positioned for long-term growth despite current macroeconomic challenges. Additionally, Lithia Motors, Inc. (NYSE:LAD) offers convenient digital services and has an expanding physical network, serving 2% of consumers.

At the end of Q4 2022, 40 hedge funds owned a stake in Lithia Motors (NYSE:LAD), down from 45 in the preceding quarter. Abrams Capital Management held a significant stake in Lithia Motors (NYSE:LAD) at the end of the fourth quarter of 2022, worth $481.4 million.

Oakmark Funds mentioned Lithia Motors (NYSE:LAD) in its Q1 2022 investor letter. Here is what the fund said:

“As is typical during periods of significant volatility, we added a new name to the portfolio. Lithia Motors (NYSE:LAD) is the largest franchised auto dealer group in the United States. The company has a long history of creating shareholder value through best-in-class operations and consistent acquisitions of smaller dealers at attractive returns. There is a long runway for management to continue creating value through such acquisitions. Management believes this will drive earnings per share to more than $50 by 2025, even as car prices return to pre-pandemic levels. Meanwhile, Lithia has a significant opportunity to further accelerate growth through Driveway, its online auto retailing platform. We believe Lithia’s existing nationwide infrastructure provides Driveway with significant competitive advantages in e-commerce, which smaller dealers will struggle to replicate. Driveway is not generating any earnings today, but it could become a major contributor over the next five to seven years. With the stock priced at less than 7x management’s 2025 EPS target and with substantial future growth potential from Driveway, we believe Lithia shares are a bargain today.”