We recently published a list of 10 Best Automotive Stocks To Buy Now. In this article, we are going to take a look at where AutoNation, Inc. (NYSE:AN) stands against the other automotive stocks.
Headwinds in the Automotive Industry
The automotive industry is heavily commoditized relative to other industries considering the fact that consumers typically have numerous options in terms of the car they want to purchase, resulting in the need for automotive companies to compete with each other predominantly on pricing. As a result, many automotive companies, especially those offering pricier vehicles, have been seeing a decline in revenue growth and profit margins over the past couple of years. This decline is primarily a consequence of rising inflation which has significantly cut down your average consumer’s spending power.
According to Daryl Kenningham in his interview on CNBC’s “Squawk Box,” the President and CEO of Group 1 Automotive, the wider macroeconomic trends surrounding the automotive industry and the support of Original Equipment Manufacturers (OEMs) in the market have resulted in prices for vehicles, both used and new, beginning to fall in 2024 – though this price decline is being seen more evidently in the case of new cars, seeing as there has been a prolonged shortage of pre-owned cars in the market. Despite the decline, though, the average transaction costs for purchasing any car are still pretty high, which has been acting as an impediment barring consumers from getting into cars.
Rising Industry Trends
Considering the current market conditions, many consumers are thus looking for lower-priced vehicles. This spells trouble for electric vehicle (EV) producers since EVs are notorious for their hefty price tags and pricey battery replacements, and lays the foundation for the newest hot trend in the automotive space: hybrid cars. Ford’s former CEO, Mark Fields, in his interview on CNBC’s “Squawk Box” on August 30, noted that because of the greater convenience offered by hybrid cars, automakers dabbling within the EV space should expand their hybrid offerings. Simultaneously, the vision of producing pure EVs shouldn’t be entirely abandoned either – instead, time and resources must be dedicated to producing lower-priced EVs that automakers can actually make money on.
Fields further added that another impediment to the growth of EV makers today is the prolonged waiting time for charging an EV. For this, the only viable solution on the horizon is the development of solid-state batteries that can significantly reduce charge time to about 5-10 minutes – around the same time you spend at a typical gas station. However, the mass production of solid-state batteries and their incorporation in EVs is still something that we won’t see happening in the near future. This is why we believe that investors interested in automotive stocks should look at not only EV manufacturers but also traditional vehicle producers or, even better, companies that offer both types of vehicles to their consumers. The list we have compiled below reflects this position.
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An AutoNation-branded dealership, showcasing the wide variety of new and used vehicles on offer.
AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 38
AutoNation, Inc. (NYSE:AN) is an automotive retailer based in Fort Lauderdale, Florida. The company offers new and used vehicles, parts, and automotive repair and maintenance services.
While many automotive retailers have been struggling in the current economy, investors may still benefit from considering investing in AutoNation, Inc. (NYSE:AN) because it is dedicated to mitigating the impact of the economy on its earnings and growth. One strategy deployed by the company to do this is highlighted by its history of stock buybacks. Between 2021 and 2022, AutoNation, Inc. (NYSE:AN) bought back about $4 billion of its stock, and in its first-quarter earnings call, the company’s board authorized an additional $1 billion of share repurchases.
Share repurchases help companies improve and juice up their EPS. Through this strategy, AutoNation, Inc. (NYSE:AN) did manage to protect its earnings in the first quarter, and it thus continued with this strategy in the second quarter as well. AutoNation, Inc. (NYSE:AN) is also actively making investments in marketing and capital expenditures to build up its inventory. These moves have also resulted in many investors developing a more optimistic opinion of the stock and its long-term growth prospects.
In the second quarter, there were 38 hedge funds long AutoNation, Inc. (NYSE:AN), with a total stake value of $616.3 million.
Alluvium Asset Management mentioned AutoNation, Inc. (NYSE:AN) in its second-quarter 2024 investor letter:
“AutoNation, Inc. (NYSE:AN) (down 3.7%) operates around 350 dealer franchises across the US, as well as collision centres and used vehicle stores. When compared to Group 1, it sells more units at a slightly higher price and margin, and derives around 50% more revenue. But its strategy is different, with nationwide branding and centralised operations. Although we prefer the Group 1 model, the economics of Autonation look attractive to us. And by introducing this into the portfolio we could thereby invest more than 5% of assets in this sector without necessitating the sale of other attractive large positions. And so after selling a little Group 1 and buying Autonation we ended the quarter with 4.1% and 1.9% positions respectively.”
Overall AN ranks 7th on our list of the best automotive stocks to buy. While we acknowledge the potential of AN as an investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AN 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.