In this article, we will be taking a look at the 10 best car repair stocks to buy now.
Price Wars in the Automotive Space
Every consumer in the market today has numerous options when it comes to cars. With the rise of electric and hybrid vehicles, this variety has only grown exponentially, resulting in many automotive sector players feeling the need to compete with each other on pricing alongside other things. Price competition has always been an indicator of a healthy market environment, as it offers the everyday consumer the ability to make an informed decision about the product that they want to buy, so this may not necessarily be a bad development. However, considering the fact that the automotive sector has been facing headwinds in the form of lower demand, particularly in light of higher inflation over the past couple of years, this additional burden of having to compete on pricing to attract more customers can result in many automotive providers facing losses.
According to Bill Russo, the founder and CEO of Automobility Limited, the price wars have penetrated the EV space with great zeal, particularly because EVs are among the priciest vehicles in the market today. Russo has stated that the weakness in demand for vehicles that we’re seeing so far in 2024 has the potential to plague the industry going forward and will continue to put pressure on pricing. With this backdrop, many investors may be wondering where to go with their money if they want to invest in the automotive space. The answer to that question is quite simple – automotive repair.
Where to Invest in the Automotive Space?
As new cars become too expensive to consider buying, your typical consumer is likely to head toward used cars, which typically require more repair and maintenance than a brand-new vehicle. Because of this trend, automotive companies that are dabbling in dealing with and repairing used vehicles may be poised to become new automotive stock investor favorites. According to Carvana CEO Ernie Garcia’s interview on CNBC’s “Power Lunch” this June, the used car market is reasonably stable this year, and used car prices are also down at present, which can be an added incentive for consumers to gravitate towards used vehicles.
Another exciting space within automotive is China, which has been rapidly growing its presence within the automotive industry with cheaper and more efficient vehicles. Going back to our discussion on price wars, we see that Chinese automakers are actually doing surprisingly well in providing low-cost EVs especially, which has led to experts such as Michael Dunne, founder and CEO of Dunne Insights, dubbing China the “world’s center of automotive manufacturing,” in an August interview with CNBC’s “Squawk Box Asia.” Dunne noted that China can produce cars more cheaply than anyone else in the world and that it has built more EVs than every other player, which has enabled it to export cars to more than 100 markets worldwide.
Considering this rapid growth, investors looking to pick up some automotive players could do well by considering companies that have longstanding partnerships with Chinese manufacturers, or by directly picking up Chinese car makers for their portfolio. The list we’ve compiled below has several companies that fit the first of these descriptions, alongside several other automotive players in the repair space.
An auto repair shop with a car in the foreground, demonstrating the need for comprehensive automobile coverage.
Our Methodology
We used a stock screener to identify stocks in the automotive parts and repair businesses. We then shortlisted the stocks based on the number of hedge funds holding stakes in them, from the lowest to the highest number, by using Insider Monkey’s hedge fund data for the second quarter.
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).
Best Car Repair Stocks to Buy Now
10. Asbury Automotive Group, Inc. (NYSE:ABG)
Number of Hedge Fund Holders: 30
Asbury Automotive Group, Inc. (NYSE:ABG) is an automotive retailer that also offers vehicle repair and maintenance services, replacement parts, and collision repair services. It is based in Duluth, Georgia.
The company managed to generate impressive second-quarter results despite challenges such as the CDK outage caused by ransomware attacks on CDK Global, which impacted several automotive companies. Asbury Automotive Group, Inc. (NYSE:ABG) had an effective backup to deal with repair orders during the outage, namely its showroom map and ClickLane tool, which enabled it to recreate about 100,000 repair orders and facilitate in-person transactions that may have started online during the outage.
Through such measures, Asbury Automotive Group, Inc. (NYSE:ABG) was able to mitigate the impact of the outage on its financial performance and ensured that it delivered record second-quarter total revenue and parts and service revenue with $581 million and gross profit of $340 million.
The resilience shown by Asbury Automotive Group, Inc. (NYSE:ABG) during the outage has impressed many investors, raising the overall popularity of the stock. Additionally, the company has been focusing on raising its profit margins within its service business in particular, the fruits of which were harvested in the second quarter, when it saw incremental growth in services and other segment revenue. Asbury Automotive Group, Inc. (NYSE:ABG) has also been inspiring investor confidence because its approach to capital allocation promises an optimal balance between acquisitions, organic investments, and share repurchases. Through these strategic moves, the company is ensuring that it sticks to a path that increases its market share, grows its worth, and returns value to its loyal shareholders.
There were 30 hedge funds long Asbury Automotive Group, Inc. (NYSE:ABG) in the second quarter, with a total stake value of $1.4 billion. Abrams Capital Management was the largest shareholder, holding 2,108,540 shares.
Bonhoeffer Capital Management mentioned Asbury Automotive Group, Inc. (NYSE:ABG) in its fourth-quarter 2023 investor letter:
“Our broadcast TV franchises, leasing, building products distributors and dealerships, plastic packaging, and roll-on roll-off (“RORO”) shipping fall into this category. One trend we find particularly compelling in these firms is growth creation through acquisitions, which provides synergies and operational leverage associated with vertical and horizontal consolidation. The increased cash flow from acquisitions and subsequent synergies are used to repay the debt and repurchase stock; and the process is repeated. This strategy’s effectiveness is dependent upon a spread between borrowing interest rates and the cash returns from the core business and acquisitions. Over the past 12 months, interest rates have been increasing, which has reduced the economics of this strategy; but a large spread still exists if assets can be purchased at the right price. Increasing interest rates have affected the returns on public LBO firms. Some firms have been reducing debt to reduce the impact of higher rates on earnings.
Asbury Automotive Group, Inc. (NYSE:ABG), a US-based automobile dealer group, a portfolio holding, is an example of a private LBO. Given Asbury’s current valuation of an 18% earnings yield and, more importantly, a five-year forward earnings yield of 38%, buybacks are accretive. Management has developed a long-term plan that includes acquisitions and operational leverage from internet sales and pre-paid service plans. The net income annual growth is expected to be 25% over the next two years based upon management’s plan. Holding the current modest 6 times multiple of earnings constant, the rate of earnings growth implies a 25% total return…” (Click here to read the full text)
9. Valvoline Inc. (NYSE:VVV)
Number of Hedge Fund Holders: 30
Valvoline Inc. (NYSE:VVV) operates and franchises vehicle service centers and retail stores. It provides fluid exchange for motor oil, transmission, and differential fluid, coolants, parts replacements for batteries, filters, wiper blades, belts, and more through its service centers.
One of the key reasons why Valvoline Inc. (NYSE:VVV) saw increased same-store sales growth across the board in the fiscal third quarter of 2024 was that it offers a comprehensive service offering to its customers. Non-oil-change service penetration was the largest contributor to same-store sales growth for the company this quarter, which stood at 6.5%.
Valvoline Inc. (NYSE:VVV) also reaped the benefits of its strategy of accelerating network growth this quarter. The company added 33 stores to its network of service providers, bringing its total network to 1,961 stores – this represents a growth of 8.7% year-over-year. Valvoline Inc. (NYSE:VVV) has also recently closed a transaction to re-franchise 17 stores in Las Vegas, a deal which is capital-efficient and is expected to help fuel growth with a longstanding franchise partner.
Through its growth strategies, Valvoline Inc. (NYSE:VVV) managed to bring in net sales of $421 million, which highlights a 12% increase year-over-year. Another major contributor to the company’s growth this quarter was its focus on data and ad-driven marketing, which enables Valvoline Inc. (NYSE:VVV) to attract the right customer at the right time in the most cost-effective manner. All in all, the company has been doing incredibly well, resulting in increased investor attention.
Valvoline Inc. (NYSE:VVV) was seen in the portfolios of 30 hedge funds in the second quarter, with a total stake value of $671.3 million. Alua Capital Management was the most prominent shareholder, holding 3,161,133 shares.
8. Lithia Motors, Inc. (NYSE:LAD)
Number of Hedge Fund Holders: 35
Lithia Motors, Inc. (NYSE:LAD) is an automotive company that offers new and used vehicles alongside parts, repair, and maintenance services. The company is based in Medford, Oregon.
This company has been on an upward growth trajectory since COVID-19 began. Lithia Motors, Inc. (NYSE:LAD) has used its higher profits and capital over the past several years to grow and scale revenue and earnings by nearly three times since 2019 and has also built, acquired, and funded all its crucial differentiating strategic adjacencies. Through these measures, the company generated its highest-ever quarterly revenue in the second quarter, of $9.2 billion, up 14% year-over-year.
The biggest advantage Lithia Motors, Inc. (NYSE:LAD) has in the market is its vast physical network built upon the automotive industry’s greatest talent, highest-demand inventory, and dense physical network. It is continuously adding new stores, foundational adjacencies, and strategic partnerships, such as Wheels, to expand its customer experiences and diversify its offerings.
Lithia Motors, Inc. (NYSE:LAD) is increasingly focused on using acquisitions to improve its vast network in the US, which offers it a huge addressable market in the automotive retail and repair space. Since the company’s inception, its acquisitions have yielded over a 95% success rate. In the second quarter alone, Lithia Motors, Inc. (NYSE:LAD) welcomed two new stores from the Sunrise Group and the Woodbridge Hyundai store located in Greater Toronto to its network. Investors looking for an automotive stock with immense reach and a great market share must consider this stock in light of this growth.
In the second quarter, 35 hedge funds were long Lithia Motors, Inc. (NYSE:LAD), with a total stake value of $1.6 billion. Abrams Capital Management was the largest shareholder, holding 2,391,188 shares.