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 Lithia Motors, Inc. (NYSE:LAD) 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 in a store, examining a new vehicle on the showroom floor.
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).
Lithia Motors, Inc. (NYSE:LAD)
Number of Hedge Fund Holders: 43
Lithia Motors, Inc. (NYSE:LAD) is a major automotive retailer that operates a wide network of dealerships and offers various services related to vehicle ownership. As per its third quarter report for fiscal 2024, the company has more than 99,000 vehicles in 467 stores across the United States, Canada, and the United Kingdom.
The company’s management has been focused on expanding its dealership network. On September 10, Lithia Motors, Inc. (NYSE:LAD) reported expanding its retail network in Florida by acquiring three dealerships from Duval Motor Company, located in Jacksonville and Gainesville. These dealerships are expected to generate over $200 million in annualized revenue, significantly boosting Lithia’s presence in the region.
During the fiscal third quarter results of 2024, the company reported record revenues of $9.2 billion, marking an 11% increase from $8.3 billion in the same quarter of 2023. In addition, management has been focused on improving its cost efficiency. It successfully reduced its adjusted Selling, General, and Administrative (SG&A) expenses from 67.9% of gross profit in the second quarter to 66% in the third quarter of 2024. The company has achieved $200 million in annualized cost savings, surpassing its initial target of $150 million. It is one of the best auto and truck dealership stocks to invest in.
Appalaches Capital stated the following regarding Lithia Motors, Inc. (NYSE:LAD) in its Q3 2024 investor letter:
“Lithia Motors, Inc. (NYSE:LAD) reported earnings, which were expectedly weaker year-over-year, but results were still better than feared. The shares have run up quite a bit since our initial purchase, but we still own them at a price at which I believe is a significant discount to their intrinsic value.”
Overall, LAD ranks 3rd on our list of best auto and truck dealership stocks to invest in. While we acknowledge the potential of LAD 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 LAD 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.