CarMax, Inc (KMX), Group 1 Automotive, Inc. (GPI), America’s Car-Mart, Inc. (CRMT): Should You Invest in Used Cars?

Group 1 Automotive, Inc. (NYSE:GPI)

Group 1 Automotive, Inc. (NYSE:GPI) operates dealerships in both the US and the UK. While not primarily a used car dealer, the firm does provide a soup-to-nuts solution for buyers of both new and used cars. Through Group 1 Automotive, Inc. (NYSE:GPI) a buyer can get a car, finance it and insure it should they desire. Again, it’s a good sign of a well organized firm to be able to offer every possible angle for a customer if they can.

The stock has, in the last week or so, taken a tumble of more than 10% on missed estimates. However, I think that’s just an earnings season stumble. This is a stock I think will do well over the long haul. It did do some retrenching during the recession but reestablished it’s growth and is going on an acquisition run beginning in 2011. It’s up more than 850% since the bottom of 2008. It even pays about a 1% dividend yield. My recommendation is to get some if you can afford it.

Lithia Motors Inc (NYSE:LAD)

Another seller of both new and used cars, Lithia is primarily located in the American West and Midwest. This is another smaller firm – its market cap is only a bit over $1 billion – that has been in an acquisition mode. Just in the last year it’s added several dealers under its umbrella and is likely going to try to continue that.

The stock is a true winner in my book. It’s grown 72% year-over-year, has a P/E above 15 and pays a 0.99% dividend. It’s even raised its dividend 40% during the last year. There’s very little here not to like and if you can afford it, I’d take a shot at getting some Lithia if you can.

Used cars sales are always going to be a bit counter-cyclical. We all should know that. The recent economic unpleasantness forced people away from the big, shiny new cars and towards used cars. But I think that might have taught some lessons that will affect long-term buying trends. Why should I have paid $25,000 for my new (used) car when I could get substantially the same vehicle for $11,000 like I did. If enough people out there made the breakthrough that used cars don’t have to be terrible then there’s a real industry here that’s just ripe for a thoughtful investor.

The article Should You Invest in Used Cars? originally appeared on Fool.com.

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