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 CarMax Inc. (NYSE:KMX) 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 happy customer inspecting a newly purchased used car with the help of a sales assistant.
CarMax Inc. (NYSE:KMX)
Number of Hedge Fund Investors: 35
CarMax Inc. (NYSE:KMX) is a leading retailer of used vehicles in the US with more than 245 locations across the country. It also provides automobile financing services. The company primarily generates revenue from its retail, wholesale, and auto financing businesses. CarMax offers a unique omni-channel experience, allowing customers to shop online or in-store. In the fiscal year that ended February 29, 2024, CarMax sold approximately 770,000 used vehicles and 550,000 wholesale vehicles at its auctions. During the same period, CarMax Auto Finance originated over $8 billion in auto financing, contributing to its substantial portfolio of more than $17 billion.
In its Q2 2025, the company demonstrated strong performance by purchasing around 300,000 vehicles, marking a 3% increase year-over-year. CarMax purchased around 269,000 vehicles from consumers with over half of these purchases coming through its online instant appraisal service. Approximately 57% of retail unit sales during the quarter were classified as omni-sales. Around 15% of retail unit sales were completed online, up from 14% last year, demonstrating CarMax’s effective integration of digital and in-store shopping options.
For fiscal Q2 2025, the company reported a revenue of $7.01 billion, surpassing analysts’ expectations by $187.41 million. The company achieved a net earnings per diluted share of $0.85, a 13% increase year-over-year, despite an increase in loan loss provisions.
CarMax Inc. (NYSE:KMX) is focused on improving efficiency in order to promote future growth. The company successfully rolled out a new order processing system nationwide across its stores and customer experience centers. This system helps associates guide customers through their buying journey. The company is focused on further improving efficiency and customer satisfaction through innovative tools like shopping accounts and a generative AI knowledge management system for associates. These tools are planned to be rolled out later this year. Additionally, the launch of an EV Hub on their website positions CarMax Inc. (NYSE:KMX) to meet the growing interest in electric vehicles and hybrids.
With its commitment to a seamless omni-channel experience and ongoing enhancements to operations, KMX stands out as an attractive option for investors seeking opportunities in the expanding used car market. It ranks among the top 5 on our list of the best used car stocks to buy according to hedge funds.
Insider Monkey’s Q2 2024 database reveals that 35 hedge funds held investments in CarMax Inc. (NYSE:KMX), amounting to over $1.1 billion in total stakes. Diamond Hill Capital is the most significant shareholder, possessing 6.7 million shares valued at nearly $491.6 million as of June 30.
Overall KMX ranks 5th on our list of the best used car stocks to buy according to hedge funds. While we acknowledge the potential of KMX 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 KMX 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.
