In this article, we will look at the 7 Best Auto and Truck Dealership Stocks to Buy.
US Car and Truck Dealership Market
The auto dealership market is one of the key segments of the greater automotive industry. According to a report by Verified Market Research, the auto dealership industry was valued at $257.30 billion in 2023. The market is forecasted to grow at a compound annual growth rate of 4% to reach $338.6 billion by 2030.
The auto dealership market is a consumer-centric industry, which revolves around customer confidence, inflation rates, interest rates, and the overall regulatory environment. According to a press release by Reuters on July 26, the US car market is facing headwinds due to weak prices, high inventories, and difficulties in logging profits. The slowed market environment has hit shares of major auto manufacturers and car dealerships nationwide. On top of the macro environment challenges, the market was hit by cyber attacks in June 2024. On June 20, CNN reported that the US and Canadian dealership market stood still due to a cyber attack incident at a data provider called CDK Global. CDK Global data is used by more than 15,000 auto dealers across all major countries. While not all auto dealers use CDK to process orders, those that did faced slower sales growth during the quarter.
As per Reuters, the overall new vehicle sales throughout the US in June 2024 stood at 1.32 million units, representing a seasonally adjusted annualized rate of 15.29 million units during the year. Moreover, affordability also remains one of the key concerns for the market, due to which inventories are not expected to advance as strongly as they did over the past 12 months.
Looking ahead, according to the latest Cox Automotive Dealership report on June 10, the Cox Automotive Dealer Sentiment Index (CADSI) remained stable from the first quarter to the second quarter of 2024. The current market index score for Q2 is 42, which suggests that US auto dealers perceive the market to be weak. For context, the score was 45 a year ago and below the threshold of 50. Moreover, the current market expectation shows a decline in market expectations for the next three months, as the market outlook has dropped from a score of 51 in Q1 to 44 in Q2. The downward trend is attributed to the weaker tax refund season and the ongoing political instability due to elections. To read more about the automotive industry you can look at the 7 Best Small Cap Automotive Stocks to Buy.
Now that we have looked at how the US auto and truck dealership is performing. Let’s look at the 7 best auto and truck dealership stocks to buy.
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Our methodology
To compile our list of the 7 best auto and truck dealership stocks to buy, we used the Finviz stock screener. We selected Auto & Truck Dealership industry to get a consolidated list of stocks. Next, we selected and ranked the stocks that were the most widely held by institutional investors, as of Q1 2024. The list is in ascending order of the number of hedge fund holders for each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Best Auto and Truck Dealership Stocks to Buy
7. Asbury Automotive Group, Inc. (NYSE:ABG)
Number of Hedge Fund Holders: 31
Asbury Automotive Group, Inc. (NYSE:ABG) is one of the best auto and truck dealership stocks to buy. It was held by 31 hedge funds in Q1 2024, with total stakes worth $1.414 billion. The group operates as one of the largest franchised automotive retailers in the United States and is also a Fortune 500 company. Asbury Automotive Group, Inc. (NYSE:ABG) generates revenue from four business segments namely, New Vehicle Sales, Used Vehicle Sales, Auto Repair and Services, and Finance and Insurance. As per its 2023 annual report, the group owned and operated 208 new vehicle franchises at 158 dealerships across 16 states. The group operates through its omni-channel platform digitally and a diverse physical dealership network. It sells vehicles, parts, and services to individual retailers, other dealers, and vehicle owners.
Asbury Automotive Group, Inc. (NYSE:ABG) delivered a profitable second quarter of 2024 despite the CDK Global outage, which impacted dealerships across the country. CDK Global, which is a major provider of retail software to dealerships in North America suffered a series of cyber attacks in June 2024 forcing them to shut down most of their systems. Asbury Automotive Group, Inc. (NYSE:ABG) was also impacted by the CDK outage and, according to management, the group lost around $0.95 to $1.15 in earnings per share during the quarter. However, despite the outage, the group was able to pull off record total revenue of $4.2 billion and record service revenue of $581 million.
The group was able to increase its total revenue by 13% and gross profits by 2% by effectively utilizing its omni-channel platform, ClickLane, as a transactional software tool. Asbury Automotive Group, Inc. (NYSE:ABG) was able to retail more than 15,200 sales through ClickLane during the quarter, with more than 8,000 transactions in June when CDK was down. Moreover, the company delivered an adjusted EBITDA of $236 million and generated a robust $193 million in adjusted operating cash flow, demonstrating its cash-generating capabilities. The competitive edge of the group lies in its ability to navigate profitability through tough market conditions by leveraging its resources and brand name. Moreover, the group has also been able to grow its market presence in the country. Since 2019, Asbury Automotive Group, Inc. (NYSE:ABG) has entered at least 5 new markets and deepened its market presence in 3 existing states.
Should you invest in Automotive Group, Inc. (NYSE:ABG)?
The company indeed faced some headwinds from the CDK outage, however, we need to see its history of profitability. The group has been able to grow its top line by 11% and its bottom line by 13% over the last decade. Moreover it also has 52 million in cash and cash equivalents, which offers it some cushion for growth. The stock is currently trading at 9 times its forward earnings, a 44% discount to its sector.
Bonhoeffer Capital Management stated the following regarding Asbury Automotive Group, Inc. (NYSE:ABG) in its fourth quarter 2023 investor letter:
Asbury Automotive Group, Inc. (NYSE:ABG), a US-based automobile dealer group, a portfolio holding, is an example of a private LBO. Given Asbury’s current valuation of an 18% earnings yield and, more importantly, a five-year forward earnings yield of 38%, buybacks are accretive. Management has developed a long-term plan that includes acquisitions and operational leverage from internet sales and pre-paid service plans. The net income annual growth is expected to be 25% over the next two years based upon management’s plan. Holding the current modest 6 times multiple of earnings constant, the rate of earnings growth implies a 25% total return.
6. Valvoline Inc. (NYSE:VVV)
Number of Hedge Fund Holders: 34
Valvoline Inc. (NYSE:VVV) is a leading provider of automotive services and premium branded lubricants. The company operates and franchises vehicle service centers and retail stores in the United States and Canada. The service centers of the company provide various services including fluid exchange for motor oil, coolants, and transmission, replacement parts for batteries, filters, belts, and safety services. Valvoline Inc. (NYSE:VVV) has operations in more than 1,850 service center locations and supports nearly 300 locations through its Express Care platform. Some of the key customers of the company include passenger vehicle owners including electric, hybrid, and gasoline cars, and owners of light and medium-duty vehicles.
The company has a strong brand presence in the automotive lubricant industry with a history dating back to 1866. Moreover, the wide range of oil and non-oil services including battery replacement business not only allows Valvoline Inc. (NYSE:VVV) to generate revenue from multiple streams but also gives it a competitive edge to capitalize on the growing electric vehicle segment in the future.
The company posted a successful second quarter of 2024, with significant growth in revenue and profitability. The top line of the company grew across its network with system-wide same-store sales growing 13% year-over-year to reach $746 million. Profitability throughout the quarter was also encouraging with adjusted EBITDA growing by 21% to reach $105 million and earnings per share improving 60% to $0.37 per share, outperforming analyst expectations by $0.02. Valvoline Inc. (NYSE:VVV) also increased its market share by adding 38 new stores to its network, including 14 franchises. Management attributed its robust sales growth to strong labor management and improved supply chain costs.
Is Valvoline Inc. (NYSE:VVV) a good investment?
VVV is an investors’ favorite. It was held by 34 hedge funds during Q1 2024, with total stakes worth $718.049 million. Its earnings are expected to grow by 18% this year to reach $0.46. Moreover, the company’s strong balance sheet with more than $756 million in cash and cash equivalents offers it room for growth in the future. 13 analysts hold a consensus Buy opinion on the stock and their 12-month median price target of $48.50 implies an upside of 13% from current levels.
FMI made the following comment about Valvoline Inc. (NYSE:VVV) in its Q3 2023 investor letter:
After a long history of underinvestment under Ashland and a messy seven years as a standalone public company, Valvoline Inc. (NYSE:VVV) is finally a pure-play quick lube retailer, having sold their motor oil business earlier this year. We like the business model for its stability, growth potential, pricing power, and high returns on capital. The business offers customers a better oil change experience relative to the alternatives. Going forward, the story will be simpler to understand, the analyst coverage will be uniform, and it should get reclassified as retail. In the current environment, Valvoline has the added benefit of having a tight store-level culture that helps minimize labor turnover, and has effectively no shrink, which is currently a major thorn in the side of retailers. Given Valvoline’s choppy history (thanks to the divested motor oil business), we believe investors are in a wait and see mode as the company proves out its standalone financial results and accelerates its organic store expansion. Increased penetration in a fragmented market, expanded usage of synthetic oils, and a consistent experience as consumers continue to shift to do-it-for-me, should drive strong earnings per share growth at high incremental returns. Although we believe we can get an attractive return from just the growth, there is the chance for a higher valuation as Valvoline puts up its first year of (nearly) clean financials in Fiscal Year 2024. We also believe the short- to medium-term threat of electric vehicles is manageable. If our growth expectations are achieved, the downside is modest even if the multiple compresses meaningfully over our five-year investment horizon. We expect investors will increasingly appreciate Valvoline’s simple, high return model after a long period of being obfuscated by inferior businesses.”
5. AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 37
AutoNation, Inc. (NYSE:AN) through its subsidiaries is one of the largest automotive retailers in the United States. The company operates through three main business segments, including Domestic, Imports, and Premium Luxury services. It generates revenue by selling new and used vehicles, parts and services, and automotive finance and insurance services to its customers. As per its 2023 annual report, the company owned and operated 349 new vehicle franchises from 252 stores in the United States. The company also owned 53 branded collision centres, 19 used vehicle stores, and 3 parts distribution centres.
The competitive edge of the company lies in its extensive network of over 300 franchises and stores that are situated in major metropolitan cities of the country. The strategic location of its stores allows it to access a vast customer base. Moreover, the company has been focusing on its digital capabilities to enhance customer experience by enabling online vehicle browsing and purchasing.
The second quarter earnings were impacted by the CDK outage, however, the company was still able to maintain its margins and profitability. According to management, the outage impacted $1.55 in earnings per share during the quarter. Total revenue for the quarter amounted to $6.48 billion, a 6% decline year-over-year, however identical to the first quarter results. Gross profits were also impacted by the outage and were recorded to be $1.2 billion, an 18% decrease year-over-year. On the bright side, the company was able to maintain stable margins, with gross margins of 48% increasing 60 base points subsequently, due to improved service efficiency. Moreover, the sales of imported brands witnessed a 6% growth, demonstrating strong brand value despite tough market conditions. AutoNation, Inc. (NYSE:AN) achieved another notable milestone of bringing back its new vehicle inventory to pre-COVID levels and generated operating income of $319 million in the quarter.
Should you invest in AutoNation, Inc. (NYSE:AN)? Here’s the conclusion:
There is no doubt that the company faced some headwinds due to the CDK outage, however, what’s notable is management’s ability to maintain margins amidst challenging market situations. Moreover, if you look at the company’s 10-year record, you will see that it has been able to grow its revenue by 4% and net income by 7%. AN also presents an attractive entry point for investors as it is trading at 9 times its forward earnings, which is a 37% discount to its sector. Wall Street is also bullish on the stock. 14 analysts have a consensus Buy rating on the stock, with their median price target of $190 presenting a 14% upside from current levels.
AutoNation, Inc. (NYSE:AN) was held by 37 hedge funds in Q1 2024, with total stakes worth $685.054 million.
Bonhoeffer Capital Management stated the following regarding AutoNation, Inc. (NYSE:AN) in its first quarter 2024 investor letter:
What is interesting about the car dealer group of firms is that the EPS growth has been reasonably close despite how different the firm’s operating models were. AutoNation, Inc. (NYSE:AN), with few acquisitions and a lot of repurchases, had net income growth close to total auto US dealer sales growth of 3% compared to Lithia which was very acquisitive and issued more shares than it repurchased. As can be seen by stock price returns, the market discounted AutoNation’s approach of fewer acquisitions and more buybacks versus the more common acquisition and buyback approach.
4. Group 1 Automotive, Inc. (NYSE:GPI)
Number of Hedge Fund Holders: 38
Group 1 Automotive, Inc. (NYSE:GPI) is one of the best auto and truck dealership stocks according to hedge funds. It was held by 38 hedge funds during Q1 2024, with total stakes worth $496.174 million.
Group 1 Automotive, Inc. (NYSE:GPI) is a Fortune 500 company and a leading automotive retailer in the United States and the United Kingdom. The company sells new and used vehicles including cars, light trucks, and vehicle parts. The company is also involved in arranging vehicle financing and insurance contracts. Group 1 Automotive, Inc. (NYSE:GPI) has a total of 260 dealerships, 337 franchises, and 45 collision centres across the US and UK. The company also operates an omni-channel platform that helps customers access its services.
What sets Group 1 Automotive, Inc. (NYSE:GPI) apart from its competitors is its ability to leverage its omni-channel platform, during market challenges such as the CDK outage to deliver record revenues. The company reported a total revenue of $4.7 billion, which increased 3% year-over-year on the back of new vehicle revenue of $2.4 billion. The new vehicle sales for the company in the US were up 7%, reflecting resilient demand and management’s focus on driving volume. Group 1 Automotive, Inc. (NYSE:GPI) was able to pull off record sales during the quarter due to an effective transition to its omni-channel platform during the CDK outage. Moreover, the company has been acquiring dealerships throughout the quarter to grow its market share. It acquired 4 Mercedes-Benz dealerships and UK operations of Inchcape, a prominent automotive distributor and retailer with operations worldwide. The acquisitions will not only add to the dealership portfolio of the company but will open new avenues of growth in the future.
Should you invest in Group 1 Automotive, Inc. (NYSE:GPI)?
Group 1 Automotive, Inc. (NYSE:GPI) can be a good investment considering it has delivered an exceptional quarter during tough conditions. Moreover, the company has a history of generating healthy revenue and profits. Over the past decade the company has been able to grow its top line by 7% and its bottom line by over 18%. Moreover, the stock is trading at 8 times its forward earnings, which is a 43% discount to its peers. Given that earnings are expected to grow by 2.31% this year to $9.72, the stock is cheap.
Nine analysts have a consensus Buy opinion on the stock and their 12-month median price target of $367.5 represents an upside of 8% from current levels.
Conventum – Alluvium Global Fund stated the following regarding Group 1 Automotive, Inc. (NYSE:GPI) in its Q2 2024 investor letter:
As most readers know, the Fund is constrained by “risk” regulations, one of which stipulates that no more than 40% of the Fund’s assets can be held in positions of above 5% and no position can be greater than 10% (known as the 5/10/40 rule). By early May, as a result of our March buying and the share price rising, Group 1 Automotive, Inc. (NYSE:GPI) (up 1.9%) had come to represent more than 5% of the Fund’s assets. Whilst we like Group 1, we also like all the other Fund holdings that are above 5%. And, unlike those, when it comes to Group 1 there is another attractive company in the same sector available for our investment. Although we prefer the Group 1 model, the economics of Autonation look attractive to us. And by introducing this into the portfolio we could thereby invest more than 5% of assets in this sector without necessitating the sale of other attractive large positions. And so after selling a little Group 1 and buying Autonation we ended the quarter with 4.1% and 1.9% positions respectively.
3. Lithia Motors, Inc. (NYSE:LAD)
Number of Hedge Fund Holders: 39
Lithia Motors, Inc. (NYSE:LAD) is another Fortune 500 company and one of the best auto and truck dealership stocks to buy. It was held by 39 hedge funds during Q1 2024 with total stakes worth $2.15 billion.
Lithia Motors, Inc. (NYSE:LAD) is an international automotive retailer that operates through two main business models namely Vehicle Operations and Financing Operations. The company through its Vehicle Operations segment sells new and used vehicles and provides parts, repair and maintenance services. On the other hand, the Financing Operations provide vehicle finance and insurance products along with financing for buying and leasing retail vehicles. Lithia Motors, Inc. (NYSE:LAD) operates through its portfolio of renowned brands including Driveway and Greencars at numerous physical locations and through e-commerce platforms. As of December 2023, the company operated in more than 340 locations with 44 brands in the US, UK, and Canada.
The company posted a robust second quarter of 2024, with all-time high quarterly revenue and the first quarter of profitability in the Financing Operations division. Revenue grew by 14% year-over-year to an all-time high of $9.2 billion. Moreover, Financing Operations generated $7.2 million in income during the quarter, compared to a loss of $18.7 million in the previous year. Strong performance in same-store sales and cost-saving measures by management resulted in improved margins and record revenue for the quarter. The strategic edge of the company lies in its vast physical network that spans three major automotive markets. The company entered into strategic partnerships to improve its market share recently. Lithia Motors, Inc. (NYSE:LAD) purchased a minority stake in Wheels, which is a fleet management company in North America. Moreover, the company is also working towards improving its online presence. The digital platform of the company witnessed a 2% increase in monthly unique visitors, reaching 12 million per month.
Lithia Motors, Inc. (NYSE:LAD) presents an attractive entry point for value investors. The stock is currently trading at 10 times its forward earnings, a 34% discount to its sector. The company has a solid history of growth. Its revenue and net income have grown by 23% and 22% over the past 10 years. Moreover, with more than $941 million in cash and cash equivalents and management’s aim to save $150 million in annualized SG&A, there is significant room for growth. Wall Street is bullish on the stock. 15 analysts have a consensus Buy rating and their median price target of $335 represents an upside of 20% from current levels.
Here is what Bonhoeffer Capital Management has to say about Lithia Motors Inc. (NYSE:LAD) in its Q1 2023 investor letter:
Asbury and Lithia have the highest earnings growth driven by growth via consolidation. All of the firms have had a reduction in PE over the last 10 years. The question is: will these historical trends continue? There is a large TAM for continued consolidation, and given the PEs (6-8x earnings) today, buybacks will be accretive to all of these firms. I think the historical trends are intact and will continue into the future; thus, I am bullish on growth for the consolidation-focused automobile dealers.
2. CarMax, Inc. (NYSE:KMX)
Number of Hedge Fund Holders: 42
CarMax, Inc. (NYSE:KMK) is a retailer of used vehicles and related products in the United States. The company operates through Sales Operations and Auto Finance. The Sales Operations segment offers a wide range of used vehicles from domestic to premium luxury vehicles, and vehicle repair services. The Auto Finance segment engages in alternative financing for retail customers. CarMax, Inc. (NYSE:KMX) was held by 42 hedge funds during Q1 2024, and their total stake was $1.55 billion.
One of the competitive advantages of the company lies in its robust supply chain and inventory management capabilities. During the fiscal first quarter of 2025, the company achieved record vehicle sourcing and was able to acquire around 35,000 cars from dealers, up 70% year-over-year. A strong inventory dictates the company’s ability to manage its inventory and maintain prices competitively for its customers. Moreover, the Auto Finance segment also contributed greatly to overall profitability by growing 7% year-over-year regardless of the challenging lending market.
CarMax, Inc. (NYSE:KMX) faced some challenges during the quarter. Its total sales were down 7% and amounted to $7.1 billion. The decline in sales was primarily due to a 3.1% decrease in retail unit sales and a dip in the average selling price of vehicles, which as per management declined by around $700. There were a series of challenges by the overall market as well arising from consumer affordability challenges, high inflation, and interest rates. However, regardless of these challenges, the company was able to maintain its Gross Profit per Unit (GPUs). Wholesale GPUs were recorded to be at $1,064, a slight increase from $1,042 in the same period last year. Looking ahead, the company is focusing on enhancing its omni-channel platform, expanding its vehicle sourcing, and implementing cost-saving measures.
If you look at the company’s 10-year history, you will find that CarMax, Inc. (NYSE:KMX) has done well to grow its revenue by 8% and levered free cash flow by 11% over the past decade. That’s decent growth.
Giverny Capital Asset Management stated the following regarding CarMax, Inc. (NYSE:KMX) in its Q2 2024 investor letter:
Our holding CarMax, Inc. (NYSE:KMX) continues to scuffle along in what is a very challenging market for used cars, because of both high interest rates and a lack of supply of late model used cars after supply chain issues slowed production in the COVID-19 years. A typical monthly payment on a good used car is more than $100 per month higher today than pre-pandemic, with about two-thirds of that attributable to higher auto prices and one-third to higher interest rates on loans. The company noted in a recent meeting with investors that annual sales of used cars aged 0-6 years have fallen from about 15 million to 12.3 million, down 18%, over the past couple of years. Lately, it appears that sales of late model used cars have begun to improve. If the trend holds, CarMax ought to see much better results.
1. Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 43
Carvana Co. (NYSE:CVNA) is an innovative e-commerce platform that facilitates users to buy and sell used vehicles in the United States. What sets the company apart from traditional e-commerce platforms is its ability to leverage technology to enhance user experience. Users of Carvana Co. can research, identify, and inspect the vehicle using a patented 360-degree imaging technology, which essentially gives you a virtual tour of your car. The company also provides financing and warranties on used vehicles and offers scheduled vehicle delivery or pick-up services. Customers can go through a pool of more than 30,000 vehicles at the company’s website and also visit 50-plus auction sites in the US to buy or sell their vehicles.
Carvana Co. (NYSE:CVNA) posted a successful second quarter of 2024 as one of the fastest-growing and profitable automotive retailers in the US. The retail units sold during the quarter increased by 33% year-over-year, reaching 101,440 units, thereby dictating strong customer demand amidst challenging market conditions. The increased retail units sold resulted in the revenue growing by 15% year over year to $3.41 billion. The company also achieved new profitability milestones and reported net income of $48 million and margins of 1.4%. Carvana Co. (NYSE:CVNA) is also focusing on reducing its operating cost and subsequently decreased its SG&A per retail unit sold by $400 and generated a record GAAP operating income of $259 million. The full-year guidance for the company remains positive with adjusted EBITDA between $1 billion to $1.2 billion, indicating a significant increase from last year.
Should you invest in Carvana Co. (NYSE:CVNA)? Here’s the conclusion:
Carvana Co. (NYSE:CVNA) has demonstrated strong performance during the quarter. The company’s revenue has grown at a compound annual growth rate of 33% over the last 5 years. Money managers are bullish on the stock. It was held by 43 hedge funds during Q1 2024 with total stakes worth $3.33 billion. Moreover, 22 analysts hold a consensus Buy opinion on the stock and their median price target of $150 represents an upside of 8% from current levels.
Saga Partners made the following comment about Carvana Co. (NYSE:CVNA) in its second half 2022 investor letter:
I have discussed Carvana Co. (NYSE:CVNA) several times since we first purchased it in 2019 but want to provide an update given the stock’s decline and negative headlines. Historically, Carvana has grown gross profits at a faster rate than operating costs. In 2021, Carvana grew retail unit volumes 74% to over 400,000 cars to become the second largest used car dealer after CarMax. Carvana reached $1.9 billion in gross profits, EBITDA breakeven, and expectations entering 2022 were for continued unit volume growth and scale operating costs.
Similar to Redfin, Carvana has been impacted by pretty extreme industry disruptions/volatility. Supply chain bottlenecks restricted new car production and caused prices to rise. When combined with higher interest rates, car affordability declined and used car volumes crashed
Carvana plans and hires for expected capacity 6-12 months into the future. Entering 2022 the Company expected to grow unit volumes in the ~30% range year-over-year and therefore faced a cost structure far too high for the retail unit volumes experienced. Since demand has come in below expectations, management is now pursuing cost cuts to get back to EBITDA breakeven…
While we acknowledge the potential of Carvana Co. (NYSE:CVNA) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
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