In this article, we discuss 5 best used car stocks to buy now. If you want to see more stocks in this selection, check out 10 Best Used Car Stocks To Buy Now.
5. CarMax, Inc. (NYSE:KMX)
Number of Hedge Fund Holders: 28
CarMax, Inc. (NYSE:KMX) is a Virginia-based retailer of used vehicles in the United States. It offers customers a range of used vehicles, including domestic, imported, and luxury vehicles, as well as hybrid and electric vehicles. On September 30, Oppenheimer analyst Brian Nagel maintained an Outperform rating on CarMax, Inc. (NYSE:KMX) but lowered the price target on the shares to $100 from $125. The “unique” post-pandemic dynamic within the used car sector has weighed on CarMax, Inc. (NYSE:KMX)’s sales trends, the analyst told investors. However, he believes present disruptions are likely transitory and should lead to rebounding sales and more consistent, resilient market share gains.
According to Insider Monkey’s data, 28 hedge funds were long CarMax, Inc. (NYSE:KMX) at the end of Q2 2022, compared to 27 funds in the earlier quarter. Charles Akre’s Akre Capital Management is the leading position holder in the company, with 7.3 million shares worth $665 million.
Here is what Giverny Capital specifically said about CarMax, Inc. (NYSE:KMX) in its Q3 2022 investor letter:
“Other holdings enduring difficult years include CarMax, Inc. (NYSE:KMX), the largest used car retailer in the country. Demand for used cars can be cyclical, and right now sales are off as cars become less affordable. The current soft patch comes as Carmax has ramped up investment in its ability to sell more cars online. So, we have a double whammy of lower sales and higher investment in future growth. Earnings may fall in half this year, which succinctly explains the stock falling in half. I am positive, however, that Carmax continues to have, by far, the best business model for selling used cars. The success of its Instant Offer program means it has an efficient system to acquire inventory from consumers. It has the lowest costs for refurbishing those cars for resale and the lowest freight costs for moving cars to the markets where they’ll sell most profitably. It has the lowest costs in percentage-of-revenue terms of national advertising, because of its scale. The TV ads build the brand. It turns inventory faster than peers, and because used cars lose value at a rate of about $10 per day, a 15-day advantage in inventory turn amounts to $150 per car of higher profit.
Add it all up, and this is a highly advantaged company. I see no compromise to its long-term competitive position. Indeed, Carmax is gaining share in a weak market. I continue to believe Carmax could earn $10 per share in a few years, while still only commanding a mid-single digit percentage of all used car sales. The stock has been as low as $60 recently.”
4. Cazoo Group Ltd (NYSE:CZOO)
Number of Hedge Fund Holders: 29
Cazoo Group Ltd (NYSE:CZOO) is a London-based online used car retailer in the United Kingdom and rest of Europe. On August 2, Cazoo Group Ltd (NYSE:CZOO) stock shot over 180% after posting record revenues for the second quarter. Cazoo Group Ltd (NYSE:CZOO) reported a 144.9% increase in revenue from the earlier year to £333 million, supported by a 124% boost in vehicles sold. Gross profit per unit lifted to £309 from £185 in the previous quarter. Cazoo Group Ltd (NYSE:CZOO) is one of the best used car stocks to invest in.
On August 10, Berenberg analyst Saim Saeed double upgraded Cazoo Group Ltd (NYSE:CZOO) to Buy from Sell with a price target of $2.33, up from $0.49. When reporting first half results, the management demonstrated a “significant pivot in strategy” by posting an overview of its European operations, which will likely lead to a full exit, the analyst told investors. Such a move would eliminate Cazoo Group Ltd (NYSE:CZOO)’s financing gap, allow it to better support the U.K. business, and ultimately return a higher value to shareholders, said the analyst. He believes the shares “do not reflect the value of this move” and said this “key positive catalyst” is playing out sooner than forecasted.
According to Insider Monkey’s Q2 data, 29 hedge funds were bullish on Cazoo Group Ltd (NYSE:CZOO), compared to 34 funds in the prior quarter. Daniel Sundheim’s D1 Capital Partners is the biggest stakeholder of the company, with 36.8 million shares worth $26.5 million.
3. IAA, Inc. (NYSE:IAA)
Number of Hedge Fund Holders: 36
IAA, Inc. (NYSE:IAA) is an Illinois-based company that operates a digital marketplace connecting vehicle buyers and sellers. The company’s platform markets and sells total loss, damaged, and low-value vehicles for a range of sellers, including insurance companies, dealerships, fleet lease and rental car companies, and charitable organizations. IAA, Inc. (NYSE:IAA) is one of the elite used car stocks to consider.
On August 10, Baird analyst Craig Kennison maintained an Outperform rating on IAA, Inc. (NYSE:IAA) but lowered the price target on the shares to $46 from $50. The analyst noted that the company posted mixed results and narrowed guidance. Although volume remained weak due to share losses, a strong RPU provided an offset. The analyst forecasts volume to rebound as share patterns stabilize and used car prices normalize.
Among the hedge funds tracked by Insider Monkey, 36 funds reported owning stakes worth $612.8 million in IAA, Inc. (NYSE:IAA) at the end of the second quarter of 2022, compared to 34 funds in the prior quarter worth $664 million. Paul Marshall and Ian Wace’s Marshall Wace LLP is the leading stakeholder of the company, with 2.70 million shares valued at $88.5 million.
2. Lithia Motors, Inc. (NYSE:LAD)
Number of Hedge Fund Holders: 40
Lithia Motors, Inc. (NYSE:LAD) is an American automotive retailer that offers new and used vehicles, vehicle financing services, warranties, insurance contracts, vehicle and theft protection services, and automotive repair and maintenance services. On October 19, Lithia Motors (NYSE:LAD) declared a quarterly dividend of $0.42 per share, in line with previous. The dividend is payable on November 18, to shareholders of record on November 11. Lithia Motors, Inc. (NYSE:LAD) is one of the best used car stocks to invest in.
On October 21, Benchmark analyst Michael Ward reiterated a Buy recommendation on Lithia Motors (NYSE:LAD) but lowered the price target on the stock to $300 from $400 after trimming his earnings assumptions. While he believes variable gross margin for the auto dealer group will move lower from present performance, the analyst forecasts profitability to “settle at higher levels than in the past.”
According to Insider Monkey’s data, 40 hedge funds were bullish on Lithia Motors (NYSE:LAD) at the end of June 2022, compared to 46 funds in the preceding quarter. David Abrams’ Abrams Capital Management is the biggest position holder in the company, with 2.35 million shares worth $646 million.
Here is what Oakmark Select Fund has to say about Lithia Motors, Inc. (NYSE:LAD) in its Q1 2022 investor letter:
“As is typical during periods of significant volatility, we added a new name to the portfolio. Lithia Motors (NYSE:LAD) is the largest franchised auto dealer group in the United States. The company has a long history of creating shareholder value through best-in-class operations and consistent acquisitions of smaller dealers at attractive returns. There is a long runway for management to continue creating value through such acquisitions. Management believes this will drive earnings per share to more than $50 by 2025, even as car prices return to pre-pandemic levels. Meanwhile, Lithia has a significant opportunity to further accelerate growth through Driveway, its online auto retailing platform. We believe Lithia’s existing nationwide infrastructure provides Driveway with significant competitive advantages in e-commerce, which smaller dealers will struggle to replicate. Driveway is not generating any earnings today, but it could become a major contributor over the next five to seven years. With the stock priced at less than 7x management’s 2025 EPS target and with substantial future growth potential from Driveway, we believe Lithia shares are a bargain today.”
1. Copart, Inc. (NASDAQ:CPRT)
Number of Hedge Fund Holders: 50
Copart, Inc. (NASDAQ:CPRT) is a Texas-based company that offers online auctions and vehicle remarketing services. The company sells its products to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, and exporters. Copart, Inc. (NASDAQ:CPRT) is one of the top used car stocks to buy.
On September 9, Baird analyst Craig Kennison assigned an Outperform rating to Copart, Inc. (NASDAQ:CPRT) but lowered the price target on the shares to $135 from $150. The analyst said with used car prices declining, he expects the total loss rate to bottom soon, eventually supporting more assignments at the expense of unit profitability.
According to Insider Monkey’s Q2 data, 50 hedge funds were bullish on Copart, Inc. (NASDAQ:CPRT), compared to 44 funds in the last quarter. Jim Simons’ Renaissance Technologies held the largest stake in the company, comprising 1.08 million shares worth $117.5 million.
Here is what Wedgewood Partners specifically said about Copart, Inc. (NASDAQ:CPRT) in its Q3 2022 investor letter:
“Copart, Inc. (NASDAQ:CPRT) reported +8% growth in operating income driven by a +5% increase in volume of totaled vehicles processed and an +8% increase in the value of those units. Although overhead expenses outstripped revenues in the face of persistent wage inflation, Copart can contain these costs over a multi-year time horizon. The Company maintains an effective duopoly in U.S. salvage vehicle auctions (along with IAA Inc.) and has been able to flex is salvage business to conform to the changes filtering through from the unprecedented supply (and demand) challenges of the new and used vehicle market. This is due to Copart’s unique, two-sided network platform that consists of the largest North American P&C insurance carriers and automobile dealerships, which are getting increasing access to foreign salvage buyers. As automobiles are becoming more sophisticated with hard-to-repair electronics and computers on-board, we think Copart is helping insurance partners find a life “after salvage” with consumers, particularly outside the U.S., that place a higher value on these vehicles, often simply due to different regulatory regimes. Copart can grow at attractive double-digit rates as this phenomenon continues for the foreseeable future.”
You can also take a look at 10 Biggest Car Companies In the World By Sales and 12 Best Emerging Stocks To Buy Now.
