We recently compiled a list of the 10 Best Used Car Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Asbury Automotive Group Inc. (NYSE:ABG) stands against the other car stocks.
Used Car Prices Decline: What Buyers Need to Know
The used car market plays a vital role in the automotive industry by providing affordable vehicle options. The market also supports economic growth by creating jobs in sales, financing, and maintenance while promoting sustainability through the reuse of vehicles. According to IMARC Group, the United States used car market size reached 36.1 million units in 2023. Looking forward, the market is expected to grow at a compound annual growth rate (CAGR) of 3.5% during 2024-2032 to reach 50.36 million units by the end of the forecasted period.
The used car market is experiencing notable changes as prices have continued to decline, creating a more favorable environment for buyers. In Q2 2024, the average price of used vehicles fell by 6.8% year-over-year, dropping from $29,382 to $27,319, according to data from Edmunds.
Despite this decline in used car values, the average time it takes to sell a used vehicle remains almost unchanged at around 35 days, indicating that while prices are lower, demand is still consistent. On the other hand, the average days to turn for new vehicles rose to 53 days in Q2 2024, up from 37 days in Q2 2023. This trend reflects broader dynamics in the automotive market, particularly as new car inventory levels rise.
This buildup of new cars has prompted dealers to offer discounts and incentives on older inventory, which in turn affects the values of newer used vehicles. As prices for used cars trend downward, consumers are presented with more affordable options, making it an advantageous time for buyers in the used car market.
Fed’s Rate Cut and the Car Market
The Federal Reserve recently cut U.S. short-term borrowing costs by half a percentage point, marking its first rate reduction in four years. The new key rate now stands at 4.75%-5.00%. This significant move aims to alleviate financial pressures on consumers amid concerns about a cooling labor market and high inflation, which the Fed has been combating for over two years.
The recent rate cut could eventually boost new vehicle sales. However, on September 30, CNBC reported that experts caution the effects on auto loan rates may not be immediate or substantial. Currently, auto loan rates remain high, with averages exceeding 9.61% for new cars and nearly 14% for used vehicles, according to Cox Automotive. Jonathan Smoke, chief economist at Cox Automotive, notes that although conditions are expected to improve compared to the previous year, affordability challenges will persist. He highlights that interest rates will still be more than two and a half percentage points higher than the average levels seen over the past 24 years.
While a half-percentage-point reduction is a positive step, analysts indicate that consumers might not see substantial changes in borrowing costs so soon. Smoke pointed out that auto loan rates are influenced by longer-term bond yields and the performance of loans. As a result, auto loan rate changes can be delayed.
With a clearer understanding of the dynamics in the US car market, let’s now turn our attention to the 10 best used car stocks to buy according to hedge funds.
Methodology
To compile our list of the 10 best used car stocks to buy according to hedge funds, we used the Finviz and Yahoo stock screeners to find the largest used car companies. We also reviewed various online resources for additional insights. From this initial pool of more than 20 used car stocks, we focused on the top 10 stocks most favored by institutional investors. The stocks are ranked in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer smiling delightedly after driving away in their new car from the automotive retail shop.
Asbury Automotive Group Inc. (NYSE:ABG)
Number of Hedge Fund Investors: 30
Asbury Automotive Group Inc. (NYSE:ABG) is one of the largest automotive retailers in the United States, operating 153 new vehicle dealerships and 37 collision repair centers across various states. The company offers a wide range of services, including the sale of new and used vehicles, vehicle repair and maintenance, and finance and insurance products. Asbury is committed to enhancing the customer experience through innovative technologies like its online car-buying platform, Clicklane.
The company’s diverse revenue base, along with its commitment to operational excellence across its dealership portfolio, delivers a resilient business model.
During the CDK outage, which impacted several automotive companies, Asbury Automotive Group Inc. (NYSE:ABG) effectively utilized its omni-channel platform, ClickLane, to continue selling vehicles. The company facilitated over 15,200 sales through Clicklane in the second quarter of 2024, an all-time record. This innovative approach allowed the company to mitigate the impact of the outage on its financial performance. As a result, Asbury delivered a record second-quarter total revenue of $4.2 billion, an increase of 13% year-over-year, and record second-quarter parts and service revenue with $581 million and gross profit of $340 million.
Asbury Automotive Group Inc. (NYSE:ABG) has managed to grow its top line at a compound annual growth rate (CAGR) of 10.97% over the past ten years. The company is focused on improving its profit margins, especially within its service business, which showed positive results in the second quarter with increased revenue from services. The company is also building investor confidence through smart capital allocation strategies that balance acquisitions, organic growth, and share buybacks. In the second quarter, Asbury repurchased $43 million in shares. By pursuing these strategies, the company aims to expand its market share, enhance its overall value, and deliver returns to its shareholders.
In the second quarter of 2024, 30 hedge funds held stakes in Asbury Automotive Group Inc. (NYSE:ABG), with a total investment value of $1.37 billion. Abrams Capital Management emerged as the largest shareholder, owning 2.1 million shares of the company. ABG ranks 8th on our list of the best used car stocks to buy according to hedge funds.
Overall ABG ranks 8th on our list of the best used car stocks to buy according to hedge funds. While we acknowledge the potential of ABG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ABG 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.