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 AutoNation, Inc. (NYSE:AN) 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.
An AutoNation-branded dealership, showcasing the wide variety of new and used vehicles on offer.
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).
AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 32
AutoNation, Inc. (NYSE:AN) is a major automotive retailer in the United States, primarily involved in selling both new and used vehicles. The company operates through three main segments including Domestic, Imports, and Premium Luxury, selling vehicles ranging from American automakers like General Motors to luxury brands such as Mercedes-Benz and BMW. In addition to selling vehicles, the company also offers automotive repair and maintenance services and arranges financing for vehicle purchases.
AutoNation, Inc. (NYSE:AN) faced challenges due to a cyberattack on CDK Global, which is a major software provider for the automotive industry. As a result, its revenue of $6.6 billion decreased 4% year-over-year. The gross profit also took a hit and dropped 9% year-over-year to $1.2 billion, however, the gross profit showed a sequential improvement of +2% led by Customer Financial Services (CFS) and After-Sales growth.
Despite the headwinds, management was still able to increase its market share in new vehicle sales, achieving a 2% growth in same-store units across all segments. It also strategically divested eight underperforming stores during the quarter, generating over $150 million in proceeds. This decision was part of a strategy to optimize their portfolio and take advantage of favorable market valuations before they declined. Looking ahead, AutoNation, Inc. (NYSE:AN) anticipates improved performance in the fourth quarter, particularly in new vehicle sales. The company is also optimistic about moderating interest rates and plans to leverage capital for acquisitions that promise higher returns for shareholders.
Conventum – Alluvium Global Fund stated the following regarding AutoNation, Inc. (NYSE:AN) in its Q2 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 5th on our list of best auto and truck dealership stocks to invest in. While we acknowledge the potential of AN 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 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.