In this article, we discuss the 10 best used car stocks to buy in 2022. You can skip our detailed analysis of these stocks and the current market situation, and go directly to 5 Best Used Car Stocks To Invest In.
Whenever the automotive sector enters the spotlight, the conversations almost always revolve around the electric revolution in the industry and the transition towards newer, environment-friendlier vehicles produced by major companies. In such scenarios, the used car market barely gets any media coverage. This leaves many experts confused since the used car market has consistently been more valuable than the new car market, with a much higher number of vehicles sold. Despite a growth spurt in the new car market, it may take a few years for it to have an effect on the used car market since people are still recovering from the recession and a significantly lower number of used cars are entering the market compared to previous years. According to Statista, the used car market is projected to reach over $1.5 trillion in 2027, up from $1.2 trillion in 2020, representing a compound annual growth rate of approximately 3.2% across seven years.
In another report, the used car market was valued at $260 billion in 2021, and is expected to reach $460 billion by 2027, registering an expected CAGR of over 10% during this period. Although supply chain disruption and transportation halt caused by the pandemic reduced used car purchases, the market had begun reverting to the pre-pandemic situation during the later stages of 2020 and 2021, leading to an increase in opportunities for the used car market worldwide. Numerous factors have contributed to the growth of the market these past few years, including the rise of online sales channels, an increasing demand for luxury cars, rise in income levels, shorter periods of car ownership, and a growing preference for two-wheeler owners to upgrade to small and compact cars.
However, it should be noted that the absurd growth of used vehicles market – which in turn accelerated the prices of new cars as well – creates massive risks. A number of experts and analysts warn that once global supply chains sort themselves out and the economic machinery starts running properly once again, used car prices could witness a significant drop, perhaps by 20% to 30%. In this environment, those who are looking to invest in used car stocks should understand the trends that have played a major role in the growth of the sector and still continue to shape the future. Some of the major players that investors should take note of in the used car industry include CarMax, Inc. (NYSE:KMX), AutoNation, Inc. (NYSE:AN), and Carvana Co. (NYSE:CVNA), among others listed below.
Photo by Nima Sarram on Unsplash
Our Methodology
For this list, we focused on stocks with solid business fundamentals and growth incentives. We also took into account company financials, most recent quarterly results, and the analyst and sentiment around these stocks.
The hedge fund sentiment around each stock was derived from Insider Monkey’s database which tracks 924 hedge funds as of the fourth quarter of 2021.
Best Used Car Stocks To Invest In
10: Penske Automotive Group, Inc. (NYSE:PAG)
Number Of Hedge Fund Holders: 18
Penske Automotive Group, Inc. (NYSE:PAG), headquartered in Bloomfield Hills, Michigan, is a diversified international transportation services company and one of the world’s premier automotive and commercial truck retailers.
Recently, Penske Automotive Group, Inc. (NYSE:PAG) announced that it had acquired Terry Lee Hyundai and Genesis of Noblesville, Indiana, increasing the company’s presence in the Indianapolis metropolitan market. The acquisition is expected to generate an annualized revenue of $80 million. The addition of the Hyundai and Genesis dealerships brings the total expected acquired annualized revenue in 2022 to approximately $745 million.
The company recently delivered upbeat profit and sales for the first quarter of 2022. According to its earnings report, the automotive company earned $4.76 per share on an adjusted basis, surpassing analysts’ estimates by $1.12. Additionally, Penske Automotive Group, Inc. (NYSE:PAG) posted revenues of $6.98 billion, up 20.81% on a year-over-year basis, crossing expectations of $652.25 million.
According to Insider Monkey’s database, 18 hedge funds reported holding stakes in Penske Automotive Group, Inc. (NYSE:PAG) at the end of December 2021, with stakes worth $230.6 million. This is compared to 17 funds in the previous quarter that held stakes worth $241.9 million. Cliff Asness’ AQR Capital Management is the biggest stakeholder in the company, with 555,984 shares valued at approximately $58.89 million.
Similar to CarMax, Inc. (NYSE:KMX), AutoNation, Inc. (NYSE:AN), and Carvana Co. (NYSE:CVNA), Penske Automotive Group, Inc. (NYSE:PAG) is one of the best used car stocks to invest in.
9. Group 1 Automotive, Inc. (NYSE:GPI)
Number Of Hedge Fund Holders: 19
Group 1 Automotive, Inc. (NYSE:GPI) is a Texas-based automotive retailer that offers new and used vehicles, while also providing financing, service contracts, automotive maintenance and repair services, and vehicle components. The company owns and operates 201 automotive dealerships, 267 franchises, and 46 collision centers across the United States and the United Kingdom.
Earlier this March, Group 1 Automotive, Inc. (NYSE:GPI) announced the acquisition of Charles Maund Toyota in Austin, Texas. This dealership is expected to generate $435 million in annual revenues and represents the 16th Toyota store in the Company’s U.S. portfolio.
On April 27, Group 1 Automotive, Inc. (NYSE:GPI) produced its earnings report which detailed the company’s earnings for the fiscal first quarter of 2022. The company reportedly generated revenues of $3.84 billion for the quarter, up 27.72% on a year-over-year basis, and surpassed revenue estimates by $69.45 million. The company reported earnings per share of $10.92, crossing EPS estimates by $1.49.
According to Insider Monkey’s database, Group 1 Automotive, Inc. (NYSE:GPI) was spotted on 19 investment portfolios by the end of the fourth quarter of 2021. The total stakes of these funds in the company amounted to approximately $278.16 million.
Here is what ClearBridge Investments Small Cap Value Strategy has to say about Group 1 Automotive, Inc. (NYSE:GPI) in its Q1 2022 investor letter:
“We also initiated a new position in Group 1 Automotive (NYSE:GPI), in the consumer discretionary sector. Group 1 Automotive is one of the leading auto dealership groups in the U.S. and the U.K. Through our analysis, we believe the current stock price already discounts a considerable decline in revenue and profits due to concerns about elevated used car prices and high gross margins per unit. However, we believe this does not reflect the underlying strength of the company’s diversified business line and flexible cost structure. Ultimately, we believe the company will prove more durable than the market expects and be a long-term value creator for the portfolio.”
8. KAR Auction Services, Inc. (NYSE:KAR)
Number Of Hedge Fund Holders: 21
KAR Auction Services, Inc. (NYSE:KAR), along with its subsidiaries, provides used vehicle auctions and related vehicle remarketing services for the automotive industry. Headquartered in Carmel, Indiana, the company sold nearly 2.6 million vehicles valued at over $40 billion through auctions and generated a revenue of approximately $2.3 billion in 2021.
On May 10, KAR Auction Services, Inc. (NYSE:KAR) successfully completed its sale of the ADESA U.S. physical auction business to Carvana Co. (NYSE:CVNA). Originally announced in February, includes all ADESA U.S. physical auction sites and operations. The completed transaction advances the company’s digital D2D strategy, enhances its financial profile, and better positions the company and its industry-leading digital marketplaces for accelerated growth.
CJS Securities analyst Robert Labick upgraded KAR Auction Services, Inc. (NYSE:KAR) to Outperform from Market Perform with a $20 price target on May 3.
Out of the 924 elite hedge funds tracked by Insider Monkey in the fourth quarter of 2021, 21 were long KAR Auction Services, Inc. (NYSE:KAR) with stakes worth $339.3 million. David Paradice’s Paradice Investment Management is one of the leading stakeholders in KAR Auction Services, Inc. (NYSE:KAR), with over 6.07 million stakes worth approximately $94.8 million.
Here is what White Brook Capital has to say about KAR Auction Services, Inc. (NYSE:KAR) in its Q1 2022 investor letter:
“During the quarter, White Brook Capital Partners exited the recently entered position in KAR Auction Services, Inc (KAR). During the quarter, the Company sold its US physical wholesale auto auction business to Carvana creating an attractive exit opportunity. Previously KAR had enviable market share of the physical auction market and was quickly growing its online auction business where it was the second largest player in a fragmented market. Their advantage online is uncommanding in my view and they needed their dominant physical presence to create differentiation and grow awareness and use of the online business. I was pleased with the stock price presented after the news of the physical auction’s sale and simultaneously less certain about the standalone online offering’s competitive dynamism and ability to execute. The price offered for our shares represented a very good return on our investment, even more so given the short time the capital was invested, and we exited.”
7. CarGurus, Inc. (NASDAQ:CARG)
Number Of Hedge Fund Holders: 24
CarGurus, Inc. (NASDAQ:CARG) is a Cambridge, Massachusetts-based automotive research and shopping website that assists users in comparing local listings for used and new cars, and contacting sellers.
On May 10, Needham analyst Chris Pierce lowered his price target on CarGurus, Inc. (NASDAQ:CARG) to $40 from $52 but maintained a Buy rating on the shares of the company. According to the analyst, the company reported better than expected Q1 results, but its Q2 guidance suggests higher planned spending. However, he adds that he still views CarGurus, Inc. (NASDAQ:CARG) as a compelling investment opportunity given its subscription model, positive adjusted EBITDA profile, and an “untaxing multiple” at current prices.
The company posted an EPS of $0.36 by the end of the first quarter of 2022, which beat analysts’ estimates by $0.01. Revenue for the quarter was recorded at $430.61 million, a staggering increase of 151.28% compared to the year-ago quarter, surpassing market estimates by $37.95 million.
In Q4 2021, 24 hedge funds were bullish on CarGurus, Inc. (NASDAQ:CARG), with collective stakes amounting to roughly $292.5 million. PAR Capital Management held 1.99 million stakes in CarGurus, Inc. (NASDAQ:CARG) at the end of the fourth quarter. These stakes are valued at $66.9 million, making it the leading stakeholder of the company.
6. Sonic Automotive, Inc. (NYSE:SAH)
Number Of Hedge Fund Holders: 26
Incorporated in 1997, Sonic Automotive, Inc. (NYSE:SAH) is one of the largest automotive retailers in the United States. The company operates over 100 dealerships spread across 14 states and 25 major metropolitan markets. The company’s EchoPark unit is the major growth engine of the firm. The auto retailer saw record used-vehicle unit sales of 77,835 for 2021, up 36.2% year-over-year.
On April 28, Sonic Automotive, Inc. (NYSE:SAH) reported financial results for the first quarter of 2022, with an all-time record quarterly revenue of $3.6 billion, up 28.7% on a year-over-year basis. Additionally, the company approved a quarterly cash dividend of $0.25 per share, the same as the previous. This will be payable on July 15, to all stockholders of record on June 15, 2022.
Sonic Automotive, Inc. (NYSE:SAH) is a notable stock pick among elite hedge funds, and by the end of Q4 2021, 26 hedge funds held long positions in the company worth roughly $139.12 billion. Teewinot Capital Advisers is the most prominent investor in Sonic Automotive, Inc. (NYSE:SAH) with stakes worth approximately $28.45 million in the company.
In addition to CarMax, Inc. (NYSE:KMX), AutoNation, Inc. (NYSE:AN), and Carvana Co. (NYSE:CVNA), Sonic Automotive, Inc. (NYSE:SAH) is a stock investors should pay attention to.
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Disclosure. None. 10 Best Used Car Stocks To Invest In is originally published on Insider Monkey.
