AMERCO (UHAL), Penske Automotive Group, Inc. (PAG): This Company Is Still Cheap Despite the Recent Run-Up

Penske Automotive Group, Inc. (NYSE:PAG)’s do-it-yourself equipment rental business is in a similar position within the firm. In this case, Penske Automotive Group, Inc. (NYSE:PAG)’s golden goose is its auto dealerships. The company makes most of its money from servicing cars it sells through its nationwide network of dealerships and service stations.

Although Penske Automotive Group, Inc. (NYSE:PAG)’s truck rental business is expected to remain an important part of the firm going forward, it is primarily focused on the commercial truck market — not the do-it-yourself renters that U-Haul targets. As a result, the do-it-yourself segment does not receive significant cash allocations for expansion — making U-Haul’s market share much easier to defend.

Why you should buy
U-Haul is the largest business in an industry where scale matters most. Its 50% market share is five times that of its closest competitor, which allows it to charge lower prices in order to pick up market share — and charge higher prices once its market share is solidified.

Despite being the best company in a mature industry, the stock trades hands at 12 times earnings. The fact that few people have heard of AMERCO does not mean it should not trade in line with The Coca-Cola Company (NYSE:KO), which currently trades for 21 times earnings — U-Haul’s competitive position is similar to that of the iconic soft drink maker. Long-term investors who buy the stock below $180 per share will likely do much better than the market over the next five years.

Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article This Company Is Still Cheap Despite the Recent Run-Up originally appeared on Fool.com is written by Ted Cooper.

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