1. Lithia Motors, Inc. (NYSE: LAD)
Stake Value: $917,128,000
Percentage of David Abrams’ 13F Portfolio: 20.64%
Number of Hedge Fund Holders: 39
Lithia Motors, Inc. (NYSE: LAD) is a U.S-based automotive retailer that tops the list of best value stocks to invest in right now based on David Abrams’ portfolio. The company’s recent acquisition of New Jersey-based Planet Honda is expected to contribute more than $200 million in annual revenue. In April, the automotive retailer announced that it acquired The Suburban Collection, based in Michigan, which is expected to contribute $2.4 billion in annual revenue.
Lithia Motors’ Q1 2021 net income of $156 million represents an impressive 238% gain YoY. Its revenue for the same quarterly period was $4.3 billion, representing a 55% gain from the $2.8 billion revenue reported in Q1 2020. Morgan Stanley analysts raised their price target for Lithia Motors, Inc. (NYSE: LAD) from $310 to $320. The brokerage firm assigned an “underweight” rating to the automotive retailer.
In one of its investor letters, Cartenna Capital highlighted a few stocks and Lithia Motors Inc (NYSE:LAD) is one of them. Here is what Cartenna Capital said:
“Another key winner during Q3 for the Fund was our long position in Lithia Motors Inc. (“LAD” or “Lithia”). LAD represented a compelling opportunity to own a best-in-class auto dealer at a significant discount and whose fundamental drivers including vehicle miles driven, new/used unit volumes and used pricing, were rapidly accelerating off April’s trough levels. Our thesis centered on three idiosyncratic advantages of Lithia over other auto dealers. First, Lithia’s geographic breakdown offered meaningful exposure to highly dense urban areas like the Tri-State Region (NYC) and coastal California cities, where we believed public transportation and ride sharing would lose share to private automobile transportation. Second, LAD’s rapidly growing used-car business (13.7% same-store sales in 2019) was positioned to disproportionately benefit the Company as 75% of Lithia’s used car inventory is 4+ years old. Used cars of this age are typically less commoditized, more recession resistant and generate higher margins. The third, and most compelling, idiosyncratic opportunity emerged as Lithia’s management revealed a new digital retail strategy. With this new Driveway.com platform, we immediately deemed Lithia to be the best positioned to address the entire vehicle ownership lifecycle in a digital world, take market share, and expand its multiple as new investors appreciated the omnichannel story. Further, Lithia’s new “50 and 50 Plan” outlines a path to achieve $50b1n of revenue and $50 of earnings per share by 2025 (2019: $12.9b1n revenue, $11.76 EPS). Even after a run to $227 per share in late September, LAD continues to offer a tremendous risk-reward profile.”
You can also take a peek at Billionaire Izzy Englander’s Top 10 Stock Picks and Billionaire David Abrams’ Top Stock Picks.
