10 Best Used Car Stocks To Buy According to Hedge Funds

3. AutoNation Inc. (NYSE:AN)

Number of Hedge Fund Investors: 38

AutoNation Inc. (NYSE:AN) is one of the largest automotive retailers in the US. It is known for its extensive network of over 300 dealerships that offer a wide selection of new and used vehicles. The company generates revenue primarily through vehicle sales, with a significant portion coming from its used car segment. AutoNation also provides financing options, parts, and expert maintenance and repair services to enhance the overall customer experience.

In its second quarter of 2024, the company demonstrated strong resilience despite challenges from the CDK outage that affected operations. New vehicle sales were down by 2%, but the company saw a 6% unit growth for its import brands. While used vehicle sales decreased by 8% for the quarter year-over-year, demand remained strong, indicating a healthy market. Effective sourcing and pricing strategies in the used car segment remain a key focus area for the company.

During the system outage, AutoNation Inc. (NYSE:AN) manually processed nearly 60,000 repair orders. This highlights the company’s commitment to customer satisfaction and operational resilience, even in tough situations.

The company also showcased solid financial management, with significant cash generation allowing for strategic capital deployment, including the repurchase of over 5% of its shares since the beginning of this year. The company’s commitment to delivering value to shareholders, combined with its operational strength and strategic focus, makes AutoNation Inc. (NYSE:AN) an attractive stock for investors. AN can be considered cheap at current levels. It is trading at only 10.08 times its forward earnings, a 41% discount to its sector.

In the second quarter, AutoNation Inc. (NYSE:AN) was held by 38 hedge funds, with total stakes amounting to $616.27 million, according to Insider Monkey’s database. Brave Warrior Capital emerged as the largest shareholder, holding a position worth $156.07 million as of June 30. AN ranks among the top 3 on our list of the best used car stocks to buy according to hedge funds.

Alluvium Asset Management stated the following regarding AutoNation Inc. (NYSE:AN) in its second quarter 2024 investor letter:

“Autonation (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.”