5 Best Used Car Stocks to Buy

1. Carvana Co. (NYSE: CVNA)

Number of hedge fund holders: 64  

Carvana Co. (NYSE: CVNA) is ranked first on our list of 10 best used car stocks to buy. The company’s shares have offered investors returns exceeding 121% over the course of the past twelve months. The firm owns and runs an ecommerce platform for new and used cars. It is based in Arizona. On June 30, the firm announced that it would be offering as-soon-as-next-day delivery service in the Wichita area of Kansas. The company now offers this service in close to 300 cities across the country. 

On June 29, investment advisory Piper Sandler maintained an Overweight rating on Carvana Co. (NYSE: CVNA) stock and raised the price target to $16 from $14, noting that the firm had an easier path to valuation expansion and could use the balance sheet to underwrite loans. 

At the end of the first quarter of 2021, 64 hedge funds in the database of Insider Monkey held stakes worth $7.5 billion in Carvana Co. (NYSE: CVNA), up from 63 in the preceding quarter worth $7 billion. 

In its Q1 2021 investor letter, Steel City Capital LP, an asset management firm, highlighted a few stocks and Carvana Co. (NYSE: CVNA) was one of them. Here is what the fund said:

“Carvana’s (CVNA) 4Q’20 results weren’t particularly great. EBITDA was negative ($70) million, a stark turnaround on a sequential basis from a first-ever EBITDA profit of $21 million in 3Q’20. The culprit was a steep drop off in retail unit GPU ($1,265 vs. $1,857) and wholesale unit GPU ($358 vs. $1,113) as some of the COVID-driven aberrations in the used car market began to abate.

The company’s presentation of EBITDA (calculated “bottom up”) is dubious, as it commingles non-operating items including mark-to-market changes in its retained securitization portfolio. With the exception of 1Q’20, when ABS markets were going haywire, this line item provided a tailwind throughout 2020, including a gain of $5 million in 4Q’20. Also on the non-operating self-help front, management released a reserve for vehicle service contract cancellations in 4Q’20, adding another $7 million to EBITDA, and boosting “Other” GPU by $96…” (Click here to see the full text)

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