Top 5 Stocks to Buy According to David Abrams’s Abrams Capital Management

1. Lithia Motors, Inc. (NYSE:LAD)

Abrams Capital Management Stake: $504,422,000

Percentage of Abrams Capital Management’s Portfolio: 14.54%

Number of Hedge Fund Holders: 40

Lithia Motors, Inc. (NYSE:LAD) is a car dealership group operating in the United States. The business is divided into three segments: domestic, import, and luxury. Lithia Motors, Inc. (NYSE:LAD) provides new and used vehicles, vehicle financing, warranties, insurance contracts, vehicle and theft protection services, and automobile repair and maintenance also sell vehicle body and parts. The company has over 21,000 employees. David Abrams’s holding of Lithia Motors, Inc. (NYSE:LAD) remained unchanged during the third quarter of 2022, and the fund had an investment value of approximately $504 million in the company at the end of Q3 2022.

On October 21, 2022, Michael Ward, an analyst at Benchmark, reduced his price target on Lithia Motors, Inc. (NYSE:LAD) to $300 while keeping a Buy rating on the company’s stock. The company’s recent result was underwhelming as it missed the earnings estimates, which is why the analyst reduced his price target.

Here is what Oakmark Select Fund has to say about Lithia Motors, Inc. (NYSE:LAD) in its 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.

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