In this article, we discuss 5 best used car stocks to buy now. If you want to see more stocks in this selection, check out 10 Best Used Car Stocks To Buy Now.
5. CarMax, Inc. (NYSE:KMX)
Number of Hedge Fund Holders: 28
CarMax, Inc. (NYSE:KMX) is a Virginia-based retailer of used vehicles in the United States. It offers customers a range of used vehicles, including domestic, imported, and luxury vehicles, as well as hybrid and electric vehicles. On September 30, Oppenheimer analyst Brian Nagel maintained an Outperform rating on CarMax, Inc. (NYSE:KMX) but lowered the price target on the shares to $100 from $125. The “unique” post-pandemic dynamic within the used car sector has weighed on CarMax, Inc. (NYSE:KMX)’s sales trends, the analyst told investors. However, he believes present disruptions are likely transitory and should lead to rebounding sales and more consistent, resilient market share gains.
According to Insider Monkey’s data, 28 hedge funds were long CarMax, Inc. (NYSE:KMX) at the end of Q2 2022, compared to 27 funds in the earlier quarter. Charles Akre’s Akre Capital Management is the leading position holder in the company, with 7.3 million shares worth $665 million.
Here is what Giverny Capital specifically said about CarMax, Inc. (NYSE:KMX) in its Q3 2022 investor letter:
“Other holdings enduring difficult years include CarMax, Inc. (NYSE:KMX), the largest used car retailer in the country. Demand for used cars can be cyclical, and right now sales are off as cars become less affordable. The current soft patch comes as Carmax has ramped up investment in its ability to sell more cars online. So, we have a double whammy of lower sales and higher investment in future growth. Earnings may fall in half this year, which succinctly explains the stock falling in half. I am positive, however, that Carmax continues to have, by far, the best business model for selling used cars. The success of its Instant Offer program means it has an efficient system to acquire inventory from consumers. It has the lowest costs for refurbishing those cars for resale and the lowest freight costs for moving cars to the markets where they’ll sell most profitably. It has the lowest costs in percentage-of-revenue terms of national advertising, because of its scale. The TV ads build the brand. It turns inventory faster than peers, and because used cars lose value at a rate of about $10 per day, a 15-day advantage in inventory turn amounts to $150 per car of higher profit.
Add it all up, and this is a highly advantaged company. I see no compromise to its long-term competitive position. Indeed, Carmax is gaining share in a weak market. I continue to believe Carmax could earn $10 per share in a few years, while still only commanding a mid-single digit percentage of all used car sales. The stock has been as low as $60 recently.”
