Billionaire David Abrams’ 10 Stock Picks with Huge Upside Potential

6. Lithia Motors Inc. (NYSE:LAD)

Abrams Capital Management’s Stake: $854.68 million

Number of Hedge Fund Holders: 45

Average Upside Potential as of May 8: 30.94%

Lithia Motors Inc. (NYSE:LAD) is an automotive retailer in the US, the UK, and Canada. It operates in two segments: Vehicle Operations and Financing Operations. It sells its products and services through the Driveway and Greencars brand names through a physical location, e-commerce platforms, and finance & fleet management solutions.

The company’s finance operations segment operates under DFC (Driveway Finance Corp) and delivered $12.5 million in income in Q1 2025. This was an improvement from a $1.7 million loss year-over-year. Following a full year of profitability in 2024, Lithia Motors Inc. (NYSE:LAD) anticipates a consistent earnings trajectory for DFC in 2025.

During Q1, DFC originated $623 million in loans and marked a 24% sequential increase. This brought the total portfolio balance to over $4 billion. Lithia emphasizes that each loan originated by DFC contributes up to three times more profit than traditional indirect lending. Bank of America analyst John Murphy maintained his Buy rating on the stock, while increasing the price target from $410 to $460.

River Road Small-Mid Cap Value Fund highlighted the company’s overall resiliency and stated the following regarding Lithia Motors, Inc. (NYSE:LAD) in its Q4 2024 investor letter:

“Another top contributor during the quarter was Lithia Motors, Inc. (NYSE:LAD) one of the largest global automotive retailers operating in North America and the United Kingdom. In late June, the auto industry was impacted by a cyberattack on CDK Global’s dealership management system, which runs all back-office functions at Lithia as well as over 85% of all franchised dealers in the United States. In its Q2 2024 earnings release, LAD reported a -6.4% decline in same-store sales, driven primarily by a -4.7% decline in new vehicle units as LAD was not able to process sale transactions late in the quarter due to the CDK outage. Despite lower same-store sales, LAD outperformed expectations as its cost reduction initiatives and a shift in capital allocation resulted in sequential margin improvement and a lower share count. The company achieved its $150MM in annualized cost savings target ahead of schedule and now expects to double these savings by the end of 2024 through further inventory optimization and reductions. This will result in the all-important SG&A as a percentage gross profit declining to the mid-60s range and in line with LAD’s long-term target. Acquisitions have added $27B in annualized revenues since 2020, ahead of LAD’s goal of adding $25B in acquired revenues by 2025. Given the current high private market multiples for auto dealerships, LAD’s management has shifted its capital allocation toward share repurchases, buying back 2.9% of the company in Q2. With low net leverage of 2.3x and year-to-date free cash flow of $740MM, we expect management to continue repurchasing shares aggressively. During the quarter, we added to the position prior to its Q2 results.”