8 Most Promising Car Stocks According to Hedge Funds

6. Lithia Motors Inc. (NYSE:LAD)

Number of Hedge Fund Investors: 45

Revenue Growth Rate (year-over-year): 16.58%

Lithia Motors, Inc. (NYSE:LAD) is among the Most Promising Stocks on our list. Since it is the only sizable publicly traded dealer present in rural areas, its business strategy is solid. Larger public dealers find these markets unappealing since their management teams have no concern about small cities and their luxury brand mixes and imports are more suited to suburban markets. Many Lithia brand stores around the country have no rivals within 100 miles, which gives Lithia pricing power.

After a strong fourth quarter of 2024, Lithia Motors, Inc. (NYSE:LAD)’s adjusted diluted EPS for 2024 was $7.79, down 6.4% from the previous year but higher than the $7.24 LSEG consensus. While same-store revenue grew by 3.1% YoY, total revenue rose by 20.2% YoY. Only used vehicles, as well as finance and insurance, saw a decrease in same-store sales. Many buyers still struggle to afford used automobiles, as evidenced by its same-store average selling price dropping 1.6% to $28,478 and its same-store used unit volume declining 4.3% YoY while new vehicle volume climbed by 7.4% YoY.

However, the gross profit per unit of used cars only dropped by 0.9% YoY, and new-vehicle GPU fell by 21% YoY. According to management, new-vehicle GPU is getting close to the point at which the company anticipates long-term stabilization, which is above prepandemic levels. Morningstar analysts anticipate further drops in 2025 and 2026, as the fourth-quarter same-store new GPU was $3,082, and that projection is $2,300-$2,500. Prior to the pandemic, levels were around $2,000.

Madison Mid Cap Fund stated the following regarding Lithia Motors, Inc. (NYSE:LAD) in its Q4 2024 investor letter:

“The top five contributors for the quarter were Liberty Formula One, Arista Networks, Copart, Brookfield Asset Management, and Lithia Motors, Inc. (NYSE:LAD). Lithia Motors reported quarterly results that suggested that at least some of the COVID-induced elevated levels of profitability may be more sustainable than previously thought.”