Zacks Investment Ideas feature highlights: Asbury Automotive Group, Penske Automotive Group and Lithia Motors
CHICAGO, Oct. 13, 2014 /PRNewswire/ -- Today, Zacks Investment Ideas feature highlights Features: Asbury Automotive Group, Inc. (NYSE:ABG-Free Report), Penske Automotive Group, Inc. (NYSE:PAG-Free Report) and Lithia Motors, Inc. (NYSE:LAD-Free Report).
Buy What Warren Buffett Is Buying
On Oct 2, Warren Buffett announced that Berkshire Hathaway had entered into a deal to acquire privately-held Van Tuyl Group, the 5th largest retail auto chain in the United States.
Van Tuyl has 78 dealerships and operates in the sunbelt states of Texas, Arizona, Florida and California.
Terms of the deal weren't disclosed.
Outside of a small investment in General Motors, this was Berkshire Hathaway's first big foray into automobiles.
But given the run up in the publicly-traded auto retailer stocks in the last 5 years, many investors were left wondering: did Buffett buy into this group too late?
Auto Retailers Have Buffett Value Fundamentals
Looking at the fundamentals of the publicly-traded auto retailers, it's not a surprise that Buffett bought one of these dealerships.
Despite a surge in their share prices, the auto dealerships are still among the cheapest stocks and they have growth too.
The domestic auto industry is humming along and there appears to be no slowdown in sight. Third quarter sales in the United States were the best in 8 years.
In September, U.S. auto sales jumped 9% to 1.24 million vehicles. That puts U.S. sales on pace for 16.4 million units sold this year versus just 15.4 million last year. It's the highest since the recession.
Most of the publicly-traded auto dealerships have both growth and solid valuations. They have PEGs, for instance, under 1.0.
The PEG ratio is calculated by taking the price-to-earnings (P/E) ratio and dividing it by the growth rate.
Normally, a stock with a PEG ratio under 1.0 is considered a "value".
So the auto retailers have both value AND growth, a powerful combination.
You Can Buy the Auto Retailers Too
Buffett bought a privately-owned auto retailer, but you don't need billions of dollars to get your share of the auto retail pie.
There are several publicly-traded retailers that have fantastic fundamentals, including P/Es below the average of the S&P 500, and solid Zacks Ranks.
Buffett's purchase isn't expected to close until the first quarter of 2015, but you can invest in these auto retailers right now.
3 Best Auto Retailers to Buy Right Now
- 1. Asbury Automotive
- 2. Penske Automotive
- Lithia Motors
1. Asbury Automotive Group, Inc. (NYSE:ABG-Free Report) operates 81 dealerships locations handling the sale and servicing of 29 domestic and foreign vehicle brands. It also operates 24 collision repair centers.
The second quarter saw record revenue, which increased 12% to $1.5 billion. All parts of the business saw double digit revenue gains included new and used vehicle sales, financing and parts and services. The company said the industry gained momentum in the second quarter.
Solid Value Fundamentals
Forward P/E = 15.8
Price-to-sales = 0.4
PEG = 0.9
Expected 2014 earnings growth = 21.8%
Expected 2015 earnings growth = 11.3%
Zacks Rank #2 (Buy)
2. Penske Automotive Group, Inc. (NYSE:PAG-Free Report) is one of the largest auto retailers in the United States with 177 franchises in 17 states and Puerto Rico. It also differs from some of its competitors in that it operates 147 dealerships internationally, with the vast majority of those in the United Kingdom. It also operates in commercial vehicles in Australia and New Zealand.
Like Asbury, the second quarter was also a record quarter with the first six months of the year the best in the company's history. Total revenue jumped 21.4% to $4.4 billion. Retail sales rose 10.4%.
Cheapest Amongst the Group
Forward P/E = 13
Price-to-sales = 0.2
PEG = 1.0
Expected 2014 earnings growth = 18.1%
Expected 2015 earnings growth = 12.3%
Zacks Rank #2 (Buy)
3. Lithia Motors, Inc. (NYSE:LAD-Free Report) is also among the largest of the auto retailers with 101 dealerships in 12 states. It also has the most diverse footprint, with dealerships across the United States in both city and rural locations.
It sells 29 new and used brands of autos and also performs maintenance and handles financing.
The second quarter was the highest net income in the company's history. Revenue rose 21% to $1.2 billion from the year ago quarter. All of its business segments saw double digit sales growth but the quarter was boosted by a 10% increase in revenue from service, body and parts, which was a record quarterly increase.
One of the Fastest Growing Auto Retailers
Forward P/E = 16.2
Price-to-sales = 0.5
PEG = 0.7
Expected 2014 earnings growth = 27%
Expected 2015 earnings growth = 27%
Zacks Rank #3 (Hold)
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