David Abrams’ 2022 Portfolio: Top 5 Stock Picks

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In this article, we take a look at the top 5 stock picks from David Abrams’ portfolio. If you want to check out our detailed analysis of Abrams Capital Management, go directly to David Abrams’ 2022 Portfolio: Top 10 Stock Picks.

5. Asbury Automotive Group, Inc. (NYSE:ABG)

Abrams Capital Management’s Stake Value: $339 million

Percentage of Abrams Capital Management’s 13F Portfolio: 7.92%

Number of Hedge Fund Holders: 29

Asbury Automotive Group, Inc. (NYSE:ABG) is a Fortune-500 auto dealership company headquartered in Georgia, US. Abrams Capital Management’s shares in the company make up 37% of total equity owned by 29 hedge funds.

On May 20, JPMorgan analyst Rajat Gupta lowered his price target on Asbury Automotive Group, Inc. (NYSE:ABG) to $200 from $225 and kept a Neutral rating on the shares.

Asbury Automotive Group has a trailing Price to Earnings ratio of just 5, typical in the dealership industry which has had low valuation for many years. It is trading at a far cheaper rate than the market, which is trading at multiple of 24 on average.

Here is what LRT Capital Management had to say about Asbury Automotive Group in their Q1, 2022 investor letter:

“Asbury Automotive Group is one of the largest automotive retailers in the United States. It operates 90 dealerships consisting of 112 franchises and 25 collision repair centers. The company’s stores offer new and used vehicles, parts, and service, as well as finance and insurance (F&I) products. Franchise agreements controlled by automotive manufactures and state laws create an environment of tightly controlled market entry and restricted competition.

The dealership industry is highly fragmented with 93.5% of dealers having only between 1-5 locations according to data from 2020. In fact, dealers with over 50 locations account for only 0.1% of the industry – a testament to the huge opportunity for consolidation that lies ahead. Industry dynamics, including the rising complexity of automobiles and the need for omnichannel distribution are favoring better capitalized and larger dealer groups. We believe Asbury Automotive Group has several distinct advantages, particularly its highly profitable parts and service business, its overexposure to the luxury vehicle business, which carriers the best margins, and its Clicklane omnichannel strategy. Asbury’s management has also been acting in the best interests of its shareholders by allocating capital towards acquiring dealerships to aggressively expand its business, and occasionally repurchasing stock when attractive acquisitions targets could not be found.

ABG is not a fast-growing SaaS business, but when paying a valuation of ¼ of the overall stock market, one does not need to make heroic assumptions about the future to enjoy strong returns as shareholders. We believe that over the next several years, Asbury will continue to acquire dealerships, occasionally buyback stock and invest to improve its digital shopping experience. We wrote about Asbury in detail in our August 2021 Investor Letter.”

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