We recently published a list of the 10 Best Auto and Truck Dealership Stocks to Invest In. In this article, we are going to take a look at where Asbury Automotive Group, Inc. (NYSE:ABG) stands against the other best auto and truck dealership stocks to invest in.
An Outlook of the United States Automotive Sales
On December 20, Cox Automotive reported that November retail sales figures of used vehicles rose by nearly 2% from October, reaching approximately 1.4 million vehicles. The figure indicated a robust demand as it marks a 13% increase compared to November 2023. Scott Vanner, a senior analyst at Cox Automotive, noted that sales are performing stronger than typical seasonal patterns, which usually see a slowdown due to adverse weather and reduced selling days during the holiday season. The current year has defied these trends with double-digit growth year-over-year. In addition, certified pre-owned vehicle sales also saw a month-over-month increase of 2.7%, rising from 203,272 units in October to an estimated 208,708 units in November 2024. However, on a year-over-year basis, CPO sales were down 3.5%, attributed to fewer available off-lease and trade-in vehicles.
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Looking ahead to the current month, another report by Cox Automotive expects sales volume for December to be around 1.47 million vehicles, representing a 7.7% increase from the previous month but flat year-over-year. Moreover, December’s seasonally adjusted annual rate (SAAR) for new-vehicle sales is projected to be 16.5 million, marking an increase from 15.9 million in December 2023 and matching November’s figure. Charlie Chesbrough, Cox Automotive’s senior economist in a December 17 report noted that the end of the U.S. election season has contributed to a boost in sales. Buyers are motivated by concerns about upcoming potential policy changes and EV discounts that may not last, leading to a favorable buying environment as 2024 closes.
In terms of quarterly and yearly analysis, the fourth quarter is anticipated to finish with a SAAR of 16.4 million, representing a shift to a higher sales pace since October. The report attributes these movements to better inventory levels and increased consumer confidence topped with lower interest rates. On the other hand, full-year new vehicle sales for 2024 are expected to reach approximately 15.85 million units, reflecting a 2.3% increase from the last year. Lastly, the report forecasts that new vehicle sales will continue to grow in 2025, potentially reaching 16.3 million units, driven by ongoing improvements in consumer confidence and favorable market conditions.
A customer smiling delightedly after driving away in their new car from the automotive retail shop.
Our Methodology
To curate the list of the 10 best auto and truck dealership stocks to invest in, we used the Finviz stock screener. Using the screener, we aggregated an initial list of auto and truck dealerships and sorted it by market capitalization. Next, we sourced the number of hedge fund holders for each stock from Insider Monkey’s third-quarter hedge fund database. The list is ranked in ascending order of the number of hedge fund holders.
Why do we care about what hedge funds do? 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).
Asbury Automotive Group, Inc. (NYSE:ABG)
Number of Hedge Fund Holders: 30
Asbury Automotive Group, Inc. (NYSE:ABG) is a major automotive retailer in the United States, primarily engaged in selling vehicles and providing related services. The company operates around 154 dealerships that sell both new and used vehicles from various brands, including American, European, and Asian manufacturers. In addition, it also offers a range of repair and maintenance services including vehicle repair, replacement parts, and collision repair services.
While the company faced challenges from inventory level normalization, brand challenges, and the hurricane, it was still able to deliver robust performance across the board. During the fiscal third quarter of 2024, Asbury Automotive Group, Inc. (NYSE:ABG) delivered $4.2 billion in revenue, up 16% year-over-year. The growth was driven by a 16% increase in new vehicle revenue and a 13% increase coming from its Parts and Service segment.
Madison Mid Cap Fund announced adding Asbury Automotive Group, Inc. (NYSE:ABG) to its portfolio in its Q3 2024 investor letter, stating that such companies tend to earn more profits from their parts and services segments in periods of tough economic cycles. The anticipation stood true for the company as during the third quarter while sales of new and used vehicles were up 16% and 13% respectively, gross profits decreased 11% and 6% at the same time. However, the Parts and Services segment gross profits improved by 16%, thereby neutralizing the overall gross margin decrease to only 142 bps year-over-year. It is one of the best auto and truck dealership stocks to invest in.
Madison Mid Cap Fund stated the following regarding Asbury Automotive Group, Inc. (NYSE:ABG) in its Q3 2024 investor letter:
“During the quarter we added three new holdings: Graco, Lithia Motors, and Asbury Automotive Group, Inc. (NYSE:ABG). We purchased shares in Lithia Motors and Asbury Automotive, two of the largest auto franchise dealer groups in the country, owning a diversified portfolio of dealerships ranging from Toyota to Ford to Mercedes. Investors tend to pay a lot of attention to the level of new car sales, but dealers actually earn more in profits from parts and service than they do from selling new cars, and this steady business provides a nice ballast throughout the economic cycle. In addition, we believe these businesses have a long runway to create value via consolidation of this fragmented industry, as the advantages of scale are increasing.”
Overall, ABG ranks 6th on our list of best auto and truck dealership stocks to invest in. While we acknowledge the potential of ABG to grow, 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.