Abrams Capital 13F: 5 Best Value Stocks To Buy

4. Lithia Motors, Inc. (NYSE:LAD)

Number of Hedge Fund Holders: 33
PE Ratio as of October 10: 6.72

Lithia Motors, Inc. (NYSE:LAD) is a company that operates automotive franchises and sells new and used vehicles. It has 345 stores globally. It offers 47 new vehicles and all used car brands in its stores and online. It also provides auto repair and parts services and certified pre-owned vehicles.

Lithia Motors, Inc. (NYSE:LAD) is categorized as a value stock due to its low price-to-earnings ratio (P/E) of 6.72, signaling that it trades at a lower earnings multiple than the consumer cyclical sector’s average P/E ratio of 23.75.

By the end of Q2 2023, 33 hedge funds were long Lithia Motors, Inc. (NYSE:LAD), compared to 37 positions in the previous quarter. Abrams Capital’s 13F: 5 best value stocks to buy has Lithia Motors, Inc. (NYSE:LAD) as the fourth stock on the list. The hedge fund held over 2.35 million shares in the company that sells automobiles, valued at over $714.98 million. This made up 20.55% of David Abrams’ portfolio.

Here is what Right Tail Capital said about Lithia Motors, Inc. (NYSE:LAD) in its Q1 2023 investor letter:

“The original research premise fit right into Right Tail’s wheelhouse: a set of good businesses trading at attractive long-term valuations. Valuations look inexpensive at mid to high single digit multiples of earnings. Historically, these businesses have traded at 10-15x P/E multiples despite having more leverage and holding more inventory than they do today. In some ways, the historical multiples feel appropriate given their delicate relationships with manufacturers and cyclicality; on the other hand, these businesses have produced solid mid-teens returns with attractive reinvestment opportunities suggesting they are better than average companies. Adding another wrinkle to the puzzle, these businesses have over-earned the last few years due to Covid (car shortages, consumers flush with cash, etc.).

As I began the work, the compelling return potential warranted additional research. Lithia Motors (LAD), for example, has laid out a 2025 earnings per share target of $55-60. If the company reaches $55 in earnings and trades at a 12x P/E, we’d have a stock price of $660 – this would be a triple from today’s prices and produce a ~45% IRR over 3 years. The businesses are also producing lots of cash currently (LAD has earned ~$40 per share the last few years) creating additional capital allocation optionality.”

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