In this article, we will be taking a look at the seven best car stocks to invest in now.
Robotaxis: A Market Not To Be Ignored
A lot of the conversations in the automotive space right now, specifically with respect to electric vehicles, is the impending arrival of robotaxis – autonomously driven taxis for ride-hailing – in the US market and beyond. There are several major players in this market at present, including notable Chinese EV makers and, perhaps most importantly, Elon Musk’s well-known autonomous vehicle manufacturing company. With this new product set to be unveiled in less than a month now, many investors are wondering about how the automotive sector will develop as the world gradually shifts to electric vehicles.
A lot of the talk surrounding EVs has been discouraging these past few quarters, primarily because sales for EVs are down in light of higher price tags. The robotaxi business model is something that is thus generating a lot of excitement because this is a fresh new take on the EV space – and one that allows for the rise of EVs in a more cost-effective manner. According to ARK Invest’s Director of Investment Analysis, Tasha Keeney, robotaxis demonstrating a strong hold over the automotive sector and generating growth is something that investors can expect to see over the next five years. She thus believes that ignoring robotaxis is a huge mistake for those following Musk’s EV maker’s progress and the general EV space.
How Will Robotaxis Expand the Ride-Hailing Opportunity?
Keeney believes that Musk’s robotaxis will be able to take over a significant share of the ride-hailing market because it offers a cheaper option to ride-hailers – especially younger ones. Taking the example of China, where robotaxis are currently being utilized for rides that cost as little as under a dollar, Keeney noted that Musk’s company can undercut the ride-hailing market in the US in much the same way. These days, a typical ride from the most used ride-hailing platform in the US costs about $2 on average. With Musk’s robotaxis, ride-hailers can expect to fully reap the benefits of lower operating costs because of the EV platform.
By adding the autonomous driving factor on top of this, Keeney expects robotaxis to really leverage the cost structure and lower ride-hailing costs overall. Through this, the possibility of more people being brought into the ride-hailing market seems to look less like a distant possibility and more like an inevitable development. This is especially the case for younger individuals, who would see the benefit of foregoing buying new vehicles and instead opting to catch an autonomous ride that will likely cost them much less than a traditional ride-hailing service and definitely less than driving their own personal cars.
Despite all this, Musk is expected to face immense competition from other markets, particularly China, where EVs and robotaxis are being developed at speeds at least as impressive, if not more, than those seen in the US. Despite this situation of having to share market share with other players, investors can expect companies working in the EV space to see greater growth in the next few years. Considering the immense opportunity present in the automotive space based on this analysis, we have compiled a list of the best car stocks to invest in now.
An overhead view of a factory floor, teeming with robotic arms assembling cars.
Our Methodology
We screened for the top automotive manufacturing, parts, repair, and dealership stocks based on the number of hedge funds holding stakes in them during the second quarter. We then ranked the shortlisted stocks based on this metric in ascending order.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
7 Best Car Stocks To Invest In Now
7. AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 38
AutoNation, Inc. (NYSE:AN) is an automotive retailer based in Fort Lauderdale, Florida. It offers new and used vehicles alongside automotive parts and repair services.
This company has an expansive presence in the US as it operates around 350 dealer franchises across the country. In the second quarter, it opened four new AN USA stores to meet the rising demand for used cars in the US as well. Because of this reach, AutoNation, Inc. (NYSE:AN) is able to generate more revenue than its competitor dealerships – though another reason for that is its higher price and margins.
AutoNation, Inc. (NYSE:AN) has also recently become more popular among investors because of its crisis management capabilities. During the recent CDK outage, the company managed to manually process about 60,000 repair orders while other dealerships struggled to cope and suffered huge losses. AutoNation, Inc. (NYSE:AN) has also been utilizing other means to improve financial performance, such as stock buybacks, which enabled the company to improve its EPS in the second quarter since it had authorized a share buyback of $1 billion in the first quarter.
There were 38 hedge funds long AutoNation, Inc. (NYSE:AN) in the second quarter, with a total stake value of $616.3 million. Brave Warrior Capital was the largest shareholder, holding 979,235 shares.
Alluvium Asset Management mentioned AutoNation, Inc. (NYSE:AN) in its second quarter 2024 investor letter:
“AutoNation, Inc. (NYSE:AN) (down 3.7%) operates around 350 dealer franchises across the US, as well as collision centres and used vehicle stores. When compared to Group 1, it sells more units at a slightly higher price and margin, and derives around 50% more revenue. But its strategy is different, with nationwide branding and centralised operations. Although we prefer the Group 1 model, the economics of Autonation look attractive to us. And by introducing this into the portfolio we could thereby invest more than 5% of assets in this sector without necessitating the sale of other attractive large positions. And so after selling a little Group 1 and buying Autonation we ended the quarter with 4.1% and 1.9% positions respectively.”
6. Lear Corporation (NYSE:LEA)
Number of Hedge Fund Holders: 40
Lear Corporation (NYSE:LEA) is an automotive parts and equipment company based in Southfield, Michigan. It provides car seating and electrical distribution systems for original equipment manufacturers (OEMs).
In the second quarter, Lear Corporation (NYSE:LEA) generated revenue of $6 billion and operating and free cash flow of $291 million and $170 million, respectively – both up 8% year-over-year. The primary reason for this growth is the company’s incorporation of artificial intelligence and robotics in its product offerings. Since the market is currently still seeing an AI boom, such a development is likely to propel Lear Corporation (NYSE:LEA) to even greater heights in the following quarters.
The acquisition of WIP Industrial Automation by Lear Corporation (NYSE:LEA) is a concrete step the company has taken in the area of AI and robotics integration. Through this, Lear Corporation (NYSE:LEA) has gained the capability to design AI and robotics-enabled turnkey solutions for industrial problems.
Lear Corporation (NYSE:LEA) is also gaining traction because of its innovative solutions in thermal comfort. Since the company introduced the ComfortFlex and ComfortMax seats, it has managed to bring in more partnerships with Chinese automotive brands, showcasing its entry into a large automotive market that is also heavily lucrative for all players in it.
Lear Corporation (NYSE:LEA) was spotted in the 13F holdings of 40 hedge funds in the second quarter, with a total stake value of $1.4 billion. Pzena Investment Management was the most prominent shareholder, holding 7,187,890 shares.
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