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.
7. CarMax, Inc. (NYSE:KMX)
Number of Hedge Fund Holders: 35
CarMax, Inc. (NYSE:KMX) retails used vehicles and offers reconditioning and vehicle repair services to its customers. It is based in Richmond, Virginia.
While the automotive industry, in general, has been facing significant headwinds in light of higher inflation, CarMax, Inc. (NYSE:KMX) has managed to stay strong and continues to be a large, well-known, and profitable business. In the fiscal first quarter of 2025, the company benefited from positive trends in pricing and vehicle value stability. It also expanded its vehicle sourcing capabilities by attracting more dealers to its MaxOffer program through product enhancements that make the program easier to use.
Another factor that sets CarMax, Inc. (NYSE:KMX) apart from its competitors in the market is that its financial and operational performance remained largely unaffected by the CDK outage since it doesn’t use CDK as its Dealership Management System. Resultantly, the company managed to avoid much of the negative impact of the outage and came out on top relative to its competitors that did use the CDK system. CarMax, Inc.’s (NYSE:KMX) improved competitive advantage and omnichannel approach have thus aided in the company’s growth and popularity among investors.
In total, 35 hedge funds were long CarMax, Inc. (NYSE:KMX) in the second quarter, with a total stake value of $1.1 billion.
Vulcan Value Partners mentioned CarMax, Inc. (NYSE:KMX) in its second-quarter 2024 investor letter:
CarMax, Inc. (NYSE:KMX) is the largest used car retailer in the United States. The company has the third largest wholesale business in the U.S. and a large captive finance business. We believe that CarMax’s omnichannel approach is a competitive advantage that will enable the company to continue taking market share in a highly fragmented market. This strategy enables the company to generate higher and more stable levels of profit per used vehicle sold and generate solid returns on capital. A significant portion of the used car market is made up of small independent dealerships without resources to invest in digital infrastructure. Another significant portion of the market is made up of digital-only retailers, who are now focused on profitability at the expense of volume. CarMax continues to invest in its digital infrastructure which has improved its customer experience. These investments have made it easier to buy, sell and finance vehicles. Over the last two years, management has focused on de-leveraging the company’s balance sheet and right sizing the firm, which has significantly de-risked the business and positioned CarMax well for when volumes normalize. We believe that the combination of a leaner cost structure and an improved competitive position will strengthen the company’s prospects.
6. Group 1 Automotive, Inc. (NYSE:GPI)
Number of Hedge Fund Holders: 37
Group 1 Automotive, Inc. (NYSE:GPI) is a provider of used vehicles, parts, service and insurance contracts, and automotive maintenance and repair services. The company is based in Houston, Texas.
Company management in Group 1 Automotive, Inc.’s (NYSE:GPI) second-quarter earnings call noted that its main competitive advantage arises out of two qualities. First, Group 1 Automotive, Inc. (NYSE:GPI) has immense reach across two major markets, which gives it and its original equipment manufacturers (OEMs) competitive leverage and performance advantages. This has resulted in the company developing a robust relationship with its OEM partners, which is crucial for its future growth.
The second quality that sets Group 1 Automotive, Inc. (NYSE:GPI) apart from its competitors is its capital allocation strategy. It focuses on investing in and acquiring new vehicle franchise dealerships, and in 2024 alone, the company has acquired dealerships with expected revenues of $1.1 billion. Group 1 Automotive, Inc. (NYSE:GPI) also has the capabilities for effectively integrating these businesses into its existing portfolio, which will allow these transactions to be accretive from the first day.
An example of a successful acquisition can be found in Group 1 Automotive, Inc.’s (NYSE:GPI) purchase of four Mercedez-Benz dealerships in London, which increases its existing reach outside the US.
At the end of the second quarter, 37 hedge funds were long Group 1 Automotive, Inc. (NYSE:GPI), with a total stake value of $451.4 million.
5. Autoliv Inc. (NYSE:ALV)
Number of Hedge Fund Holders: 37
Autoliv Inc. (NYSE:ALV) is an automotive parts company based in Sweden. It supplies passive safety systems such as modules and components for frontal-impact airbag protection systems, side-impact airbag protection systems, seatbelts, steering wheels, and more.
This company is one with immense global reach since it has a presence in Europe, the Americas, China, Japan, and the rest of Asia. Autoliv Inc. (NYSE:ALV) has showcased its ability to leverage this reach in its favor through its recent strategic cooperation agreement with XPENG AEROHT, which is China’s leading flying car innovator. This agreement is expected to help Autoliv Inc. (NYSE:ALV) grow exponentially, as China is steadily becoming the hub of the automotive manufacturing, parts, and repair markets.
Another reason why Autoliv Inc. (NYSE:ALV) is expected to benefit from its presence in Asia is that it’s rapidly strengthening its position with fast-growing domestic Chinese OEMs. The company is also leveraging its performance in the rest of Asia, as evidenced by its outperformance in light vehicle production in South Korea, Japan, and India. Chinese OEMs also accounted for 38% of the company’s Chinese sales in the second quarter, up from 20% at the beginning of 2022. These factors highlight the positive impact of Autoliv Inc.’s (NYSE:ALV) strong global presence on its operational and financial performance.
Autoliv Inc. (NYSE:ALV) was seen in the portfolios of 37 hedge funds in the second quarter, with a total stake value of $1.2 billion.
4. AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 38
AutoNation, Inc. (NYSE:AN) is an automotive company that primarily offers new and used vehicles, parts, automotive repair and maintenance services, and wholesale parts and collision services. It is based in Fort Lauderdale, Florida.
AutoNation, Inc. (NYSE:AN) is well-known for its history of stock buybacks, a strategy that helps the company juice up its EPS quarter by quarter and ensures that it returns maximum value to its loyal shareholders. Between 2021 and 2022, the company bought back about $4 billion of its stock, and it has retained this strategy to date since it announced a share buyback authorization of $1 billion in its first-quarter earnings call.
Another factor that attracts investors to AutoNation, Inc. (NYSE:AN) is its resilience in times of crisis. During the CDK outage, the company managed to manually process about 60,000 repair orders, which immensely benefited its financial growth and performance for the second quarter.
AutoNation, Inc. (NYSE:AN) has also continued on a steady growth trajectory this year. By the second quarter, it had opened four new AN USA stores to meet rising used car demand in the US.
We saw 38 hedge funds long AutoNation, Inc. (NYSE:AN) in the second quarter, with a total stake value of $616.3 million.
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.”
3. Aptiv PLC (NYSE:APTV)
Number of Hedge Fund Holders: 38
Aptiv PLC (NYSE:APTV) is an automotive parts and equipment company based in Dublin, Ireland. It offers vehicle components providing active safety tech solutions for vehicles, and more.
Since Aptiv PLC (NYSE:APTV) offers software and digitalization components and solutions for automotive manufacturing and repair, the company’s growth is being propelled by the move towards electric and autonomous vehicles. Even with the rise of EVs somewhat stagnating because of their hefty price tags, Aptiv PLC (NYSE:APTV) is expected to continue its growth trajectory as more consumers opt for hybrid vehicles.
Several investors believe that Aptiv PLC (NYSE:APTV) is currently trading at a discount relative to its intrinsic value. The stock has a P/E ratio of 11.3, whereas the sector median currently stands at 15.6. Additionally, the secular trend of electrification and digitalization in the automotive space, alongside the rise of Chinese OEMs, is also expected to benefit Aptiv PLC (NYSE:APTV) as well, since the company has a significant presence in China, where it has operated for over 25 years.
Aptiv PLC (NYSE:APTV) was spotted in the 13F holdings of 38 hedge funds in the second quarter, with a total stake value of $1.03 billion.
Ariel Investments mentioned Aptiv PLC (NYSE:APTV) in its first-quarter 2024 investor letter:
“We added Aptiv PLC (NYSE:APTV)) which designs and manufactures vehicle components and provides electrical/electronic and active safety technology solutions to the global automotive and commercial vehicle markets. We believe the secular trend of electrification and digitization within the automobile industry, coupled with the expansion of Chinese original equipment manufacturers (OEMs), will accelerate demand and drive long-term growth. Additionally, we anticipate APTV will grow earnings per share over the near-term through its divesture of the autonomous driving joint venture, Motional. In our view, the name is currently trading at a significant discount relative to our estimate of intrinsic value.”
2. Lear Corporation (NYSE:LEA)
Number of Hedge Fund Holders: 40
Lear Corporation (NYSE:LEA) is another automotive parts company on our list. It offers automotive seating, electrical distribution systems, and related components for automotive OEMs.
A primary reason for investing in Lear Corporation (NYSE:LEA) is its incorporation of artificial intelligence, robotics, and vision systems within its business. The company’s recent acquisition of WIP Industrial Automation highlights the growing dedication to this strategic move since the acquisition will enable it to design AI and robotics-enabled turnkey solutions for complex industrial challenges.
In the second quarter, Lear Corporation (NYSE:LEA) delivered revenue of $6 billion, which exceeded its second-quarter 2023 revenue. Operating and free cash flow also rose by 8% year-over-year, coming in at $291 million and $170 million, respectively. Considering the company’s growing focus on AI and robotics integration in its offerings, investors can expect this growth trend to continue as the world moves towards EV and hybrid vehicle adoption.
We saw 40 hedge funds long Lear Corporation (NYSE:LEA) in the second quarter, with a total stake value of $1.4 billion.
1. BorgWarner Inc. (NYSE:BWA)
Number of Hedge Fund Holders: 41
BorgWarner Inc. (NYSE:BWA) is an automotive parts company that provides solutions for combustion, hybrid, and electric vehicles. It is based in Auburn Hills, Michigan.
The company has been performing positively in 2024, primarily because of the resilience of its tech-focused portfolio. Additionally, BorgWarner Inc. (NYSE:BWA) also has plenty of free cash flow to ensure it remains afloat even in the face of current headwinds in the automotive sector. In the second quarter, the company’s free cash flow stood at $297 million, which represents an increase of $267 million year-over-year.
In its second-quarter earnings call, BorgWarner Inc. (NYSE:BWA) also announced its intention to repurchase $300 million worth of its stock in the second half of 2024. Through this, the company aims to focus on the efficient deployment of its capital and ensure that it returns value to its shareholders. BorgWarner Inc. (NYSE:BWA) also outperformed the industry by 350 basis points in the second quarter, which highlights the strength of its sales performance.
There were 41 hedge funds long BorgWarner Inc. (NYSE:BWA) in the second quarter, with a total stake value of $725.5 million.
While automotive repair stocks like BWA have great potential, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones mentioned in our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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