We recently compiled a list of the Billionaire Lee Cooperman Says The Market Is Expensive But These 10 Stocks Are Cheap. In this article, we are going to take a look at where Lithia Motors Inc. (NYSE:LAD) stands against the other cheap stocks.
Leon Cooperman recently shared his conservative outlook on the economy and discussed stocks that he is monitoring during a CNBC interview. He believes the U.S. is heading toward a fiscal disaster due to a lack of attention on rising debt. He also noted that nothing seems overvalued if a 10-year bond is valued at the current rate.
“My assumption is that we are headed into a fiscal disaster in our country. There’s nobody focusing on debt creation in the economy. My second assumption is that nothing is overvalued if a 10-year bond belongs at the current rate of 3.9%.”
Cooperman compared this to the 1972 Nifty Fifty period when government bonds were at 6.5%, and several companies which had high earnings multiples, eventually went bankrupt. He pointed out that these companies, despite their high valuations, were acquired by JP Morgan.
“In the Nifty Fifty period of 1972, the government bond went 6.5%, Avon products was 65x earnings, it has declared bankruptcy. Eastman Kodak went bankrupt with 48x earnings. IBM at 37x earnings got bankrupt. These are companies that are actively being bought by JP Morgan in the US trust.”
Cooperman emphasized that with the 10-year bond yield at 3.932%, nothing appears overvalued. He expects interest rates to remain low and anticipates a Federal Reserve rate cut in September, likely by 25 to 50 basis points. He expects that this will lead to a slow positive movement in the yield curve, with the 10-year bond yield increasing and its price declining.
Leon Cooperman also mentioned that he believes the current environment is more of a “market of stocks” rather than a unified stock market. Additionally, he expressed concern about the health insurance sector, noting that these companies are trading at low multiples, even though they have been generating excess capital and buying back their own stock. Cooperman then emphasized that he is motivated by valuation levels when assessing investments.
Leon Cooperman follows a value-focused investment strategy, concentrating on undervalued stocks and using a top-down approach to select sectors. He combines fundamental analysis with a bottom-up approach to build and manage portfolios. Omega Advisors, which handles over $3.3 billion in assets largely from Cooperman’s own wealth, has approximately $4.37 billion under management for seven clients. The firm’s Q1 2024 13F filing showed $2.4 billion in managed securities, with its top ten holdings making up 61.09% of the portfolio.
Our Methodology
In this article, we review Leon Cooperman’s latest CNBC interview and highlight ten stocks he owns and mentioned. We also provided analyst ratings, key details about each company, and the number of hedge funds investing in them.
Why focus on the stocks that hedge funds invest in? Our research shows that following the top picks of leading hedge funds can result in returns that beat the market. We use this strategy in our quarterly newsletter, where we choose 14 small-cap and large-cap stocks each quarter. Since May 2014, this approach has generated a 275% return, outperforming the benchmark by 150 percentage points. (see more details here)
A customer in a store, examining a new vehicle on the showroom floor.
Lithia Motors Inc. (NYSE:LAD)
Number of Hedge Fund Investors: 39
Lithia Motors Inc. (NYSE:LAD) is a leading U.S. automotive retailer with a strong presence in both new and used vehicle sales. Lithia Motors Inc. (NYSE:LAD) has demonstrated impressive financial health, marked by steady revenue growth, solid profits, and positive cash flow.
Lithia Motors Inc. (NYSE:LAD) is also focusing on improving its online sales and digital capabilities, which aligns with the increasing trend toward e-commerce in the automotive industry. Additionally, Lithia Motors Inc. (NYSE:LAD)’s track record of successful acquisitions helps it expand its market reach and improve operational efficiency, positioning it well for future growth.
Financial analyst Diesel views Lithia Motors Inc. (NYSE:LAD) as a strong long-term investment due to its history of strong performance. Over the past decade, Lithia Motors Inc. (NYSE:LAD) has grown its free cash flow at a 25% annual rate, well above its peers. Additionally, Lithia Motors Inc. (NYSE:LAD) has demonstrated strong financial performance, with a revenue growth of 13.8% and a non-GAAP EPS of $7.87 for the quarter, exceeding analysts’ expectations of $7.04.
Bryan DeBoer, CEO of Lithia Motors, shared the following during their latest earnings call:
“Now on to key results for the second quarter. Lithia and Driveway grew revenues to $9.2 billion up 14% from Q2 of last year. While vehicle operations experienced headwinds as a result of the CDK outage, prior to the outage, Q2 had strong improvements in our same-store sales and delivered good momentum in our cost savings efforts.
Diving into same-store sales performance, total same-store revenues were down 6.4% and gross profits declined 12.5%. Consumers remain resilient despite recent trends that reflect challenges from affordability and higher interest rates with unit sales in the quarter down only 3%. Total vehicle gross profit per unit remained resilient in the quarter at $47.62 similar to last quarter and down $951 compared to the same period a year ago. Our aftersales business was down 1.4% in the quarter. This decline is primarily related to CDK which drove after sales down almost 40% during the 12 days of the outage. We expect some of the work will be deferred into early July as our systems and processes return to normal. Our teams have been nimble and responsive, and we do not expect any long-term impacts.
Our investment adjacencies are maturing nicely as they move towards sustainable and considerable profitability. Financing operations produced strong results with income of $7.2 million in the quarter compared to $18.7 million loss last year, achieving profitability earlier than expected. Driveway and GreenCars burn rates have also been reduced by 40% compared to a year ago as we continue to refine our e-commerce strategies, improve operating and advertising efficiencies and convert new customers. All in, we generated adjusted diluted earnings per share of $7.87 a decrease of 28% from Q2 of last year with an estimated $1.10 impact from the CDK outage. We saw clear strength in operational performance in the second quarter, and we’re on pace for nearly a 50% increase in sequential EPS.
We continue to focus on unlocking the profitability of our ecosystem by decisively acting to meet customer demands and operate efficiently by delivering on our core strength execution. Moving on to our unique and extremely difficult to replicate strategy. The foundation of the LAD strategy is our vast physical network built upon the industry’s most talented people, highest demand inventory and dense physical network. We continue to build the most extensive physical network in North America and the UK, adding new stores, foundational adjacencies and strategic partnerships, such as wheels, to expand our customer experiences and diversify our portfolio. Operating in the largest addressable retail market in the world, we continue to strengthen our ability to profitably grow across all elements of our business.”
Overall LAD ranks 6th on our list of the cheap stocks to buy. While we acknowledge the potential of LAD as an investment, our conviction lies in the belief that under the radar 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 LAD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
