5 Best Auto and Truck Dealership Stocks to Buy

2. Lithia Motors, Inc. (NYSE:LAD) 

Number of Hedge Fund Holders: 40

Wall Street is bullish on Lithia Motors, Inc. (NYSE:LAD). This April, Guggenheim analyst Jonathan Elias revised his price target on Lithia Motors, Inc. (NYSE:LAD) to $320 from $332 and maintained a Buy rating on the shares.

On April 19, Lithia Motors, Inc. (NYSE:LAD) announced earnings for the first quarter of fiscal 2023. The company reported an EPS of $8.44 and generated a revenue of $6.97 billion, up 4% year over year. As of April 28, the stock has gained 11.48% over the past 6 months and is trading at a PE multiple of 5x. Lithia Motors, Inc. (NYSE:LAD) is ranked among the best auto and truck dealership stocks to buy now.

At the end of Q4 2022, 40 hedge funds were long Lithia Motors, Inc. (NYSE:LAD) and held stakes worth $1.5 billion in the company. Of those, Abrams Capital Management was the leading investor in the company and disclosed a position worth $481 million.

Here is what Right Tail Capital had to say about Lithia Motors, Inc. (NYSE:LAD) in its Q1 2023 investor letter:

“The original research premise fit right into Right Tail’s wheelhouse: a set of good businesses trading at attractive long-term valuations. Valuations look inexpensive at mid to high single digit multiples of earnings. Historically, these businesses have traded at 10-15x P/E multiples despite having more leverage and holding more inventory than they do today. In some ways, the historical multiples feel appropriate given their delicate relationships with manufacturers and cyclicality; on the other hand, these businesses have produced solid mid-teens returns with attractive reinvestment opportunities suggesting they are better than average companies. Adding another wrinkle to the puzzle, these businesses have over-earned the last few years due to Covid (car shortages, consumers flush with cash, etc.).

As I began the work, the compelling return potential warranted additional research. Lithia Motors (LAD), for example, has laid out a 2025 earnings per share target of $55-60. If the company reaches $55 in earnings and trades at a 12x P/E, we’d have a stock price of $660 – this would be a triple from today’s prices and produce a ~45% IRR over 3 years. The businesses are also producing lots of cash currently (LAD has earned ~$40 per share the last few years) creating additional capital allocation optionality.”