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 Penske Automotive Group, Inc. (NYSE:PAG) 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 wide view of a large auto dealership, its showroom packed with different types of cars.
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).
Penske Automotive Group, Inc. (NYSE:PAG)
Number of Hedge Fund Holders: 29
Penske Automotive Group, Inc. (NYSE:PAG) is an international company that focuses on transportation services, particularly in the automotive sector. It operates numerous car dealerships across various countries, including the United States, the United Kingdom, Canada, Germany, Italy, and Japan. It is also known as one of the largest retailers of commercial trucks in North America, specifically for Freightliner trucks.
The company differentiates itself from its competitors on the back of diverse operations in multiple geographic locations and retail automotive brand mix, where it generates 72% of its revenue from premium brands. During the fiscal third quarter of 2024, Penske Automotive Group, Inc. (NYSE:PAG) generated $7.6 billion in revenue, up 2% year-over-year. The company faced challenges in its Retail Automotive Dealerships segment with used vehicle sales declining by 13%, partly due to fewer trade-ins and lower availability from previous years. However, sales of new vehicles increased by 5% during the same time.
Management has been capitalizing on its stronghold over premium brands. On December 2nd, the company announced the acquisition of Porsche Centre Melbourne. The acquisition marks the third Porsche location in Melbourne and the 25th Porsche dealership worldwide for the company. Management expects this will bring $130 million in estimated annualized revenue taking its estimated annualized revenue from three dealerships in Melbourne to $260 million. It is one of the best auto and truck dealership stocks to invest in.
Black Bear Value Partners stated the following regarding Penske Automotive Group, Inc. (NYSE:PAG) in its first quarter 2024 investor letter:
“We have owned AutoNation and Penske Automotive Group, Inc. (NYSE:PAG) in the past but decided to consolidate our auto dealer investments solely into Asbury Automotive (ABG). AutoNation had gone thought a management transition and I wanted to see how the new team managed the business. They have done an excellent job and exceeded my expectations when it comes to capital allocation. As the stock looked very cheap, they bought 62% of the company coming out of COVID. As far as Penske is concerned, I think I made a mistake selling it as I undervalued a “hidden” asset in the Company that became more obvious over time. Asbury has taken on acquisitions and while the Company has done a good job, I would prefer to see how they manage the integration from the sidelines. We appreciate their stewardship and would consider buying back the stock later.
Penske is unique in that in addition to their domestic car dealerships they also own: auto dealerships in the UK, leading truck dealerships in the US, and ~29% of Penske Truck Solutions (PTS) a logistics/truck rental business (aka “the hidden asset”). The truck dealerships have always captured my attention as Parts/Service are an even larger chunk of the business than in autos (65-70% of profits for trucks). This is a very sticky, high-margin business that would trade at far higher multiples as a standalone entity. For accounting reasons, PTS is accounted for using the equity method which means their share of income comes below the operating income line and is often ignored or misvalued. Their share of PTS is conservatively worth $2.5-$3.5BB or 22-32% of the market cap of the entire company. The quality of PAG is not properly reflected in the share price. Management owns a lot of stock and seems to agree as the Company has bought back 17% of the Company in the last 2 years at attractive prices.”
Overall, PAG ranks 8th on our list of best auto and truck dealership stocks to invest in. While we acknowledge the potential of PAG 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 PAG 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.
