1. Lithia Motors, Inc. (NYSE:LAD)
Abrams Capital Management’s Stake Value: $705.6 million
Percentage of Abrams Capital Management’s 13F Portfolio: 16.46%
Number of Hedge Fund Holders: 46
Lithia Motors, Inc. (NYSE:LAD) is another automotive dealership company to make it to the list of David Abrams’ top 10 stock picks and it happens to be the number one. Not only is it number one in Abrams Capital Management’s top 10 stock picks, the fund is also the lead stakeholder with equity ownership worth $705.6 million.
On April 21, Wells Fargo analyst Colin Langan lowered his price target on Lithia to $350, down from $362 following Q1 results. Langan kept an Overweight rating on the shares.
Lithia Motors is a dividend paying stock. Shareholders of record on May 13 were paid a quarterly dividend of $0.42 per share on May 27. Lithia has been increasing the amount it pays out in dividends for 13 consecutive years, with a dividend payout ratio of 4%, indicating that its strong commitment to sustain as well as grow dividends.
Here is what Oakmark Funds had to say about Lithia Motors in their Q1, 2022 investor letter:
“As is typical during periods of significant volatility, we added a new name to the portfolio. Lithia Motors (NYSE:LAD) is the largest franchised auto dealer group in the United States. The company has a long history of creating shareholder value through best-in-class operations and consistent acquisitions of smaller dealers at attractive returns. There is a long runway for management to continue creating value through such acquisitions. Management believes this will drive earnings per share to more than $50 by 2025, even as car prices return to pre-pandemic levels. Meanwhile, Lithia has a significant opportunity to further accelerate growth through Driveway, its online auto retailing platform. We believe Lithia’s existing nationwide infrastructure provides Driveway with significant competitive advantages in e-commerce, which smaller dealers will struggle to replicate. Driveway is not generating any earnings today, but it could become a major contributor over the next five to seven years. With the stock priced at less than 7x management’s 2025 EPS target and with substantial future growth potential from Driveway, we believe Lithia shares are a bargain today.”
“As is typical during periods of significant volatility, we added a new name to the portfolio. Lithia Motors (NYSE:LAD) is the largest franchised auto dealer group in the United States. The company has a long history of creating shareholder value through best-in-class operations and consistent acquisitions of smaller dealers at attractive returns. There is a long runway for management to continue creating value through such acquisitions. Management believes this will drive earnings per share to more than $50 by 2025, even as car prices return to pre-pandemic levels. Meanwhile, Lithia has a significant opportunity to further accelerate growth through Driveway, its online auto retailing platform. We believe Lithia’s existing nationwide infrastructure provides Driveway with significant competitive advantages in e-commerce, which smaller dealers will struggle to replicate. Driveway is not generating any earnings today, but it could become a major contributor over the next five to seven years. With the stock priced at less than 7x management’s 2025 EPS target and with substantial future growth potential from Driveway, we believe Lithia shares are a bargain today.”
You can also take a peek at 5 High-Yield Dividend Stocks to Buy According to John A. Levin’s Levin Capital and 3 Defensive Stocks to Buy in 2022 According to Seth Klarman
