Could an investment be too good to be true?
Lost amidst the earnings reports by such investor favorites as
Apple and Procter & Gamble were the earnings reports of the
I'm not talking about the auto manufacturers like Ford and Toyota.
I'm talking about the retailers who simply sell, and in many cases,
repair, cars and trucks. I was surprised to learn that a handful of
these companies are publicly traded and that some of the retailers
have dealerships all across the country.
A bunch of them recently reported earnings and they didn't just
have good quarters, they had unbelievable quarters. They had the
kind of quarters most businesses only dream about.
Auto Sales Returning To "Normal"
But how is that possible more than three years into the auto
recovery? It's not as as if auto sales haven't been rising the last
few years. Car sales bottomed in 2009 at 10.4 million and have been
steadily rising ever since. Automobile analysts expect 2013 sales
of 15.1 million. That is near a "normal" auto sales market for the
But a perfect combination of improving credit availability with
zero down loans, pent up demand from buyers driving older cars for
longer than they otherwise would have, and a housing market
recovery fueling pick-up sales, has resulted in the best of times
for the retailers.
Three Auto Retail Stocks With the Best
Even though the auto stocks have had big run-ups, it's not too late
to get into the sector. Valuations are still attractive. The
companies are also expected to have double digit earnings growth
this year as analysts expect the growth to remain through 2013 and
possibly into 2014.
It doesn't get much better than buying both solid fundamentals and
big earnings growth.
However, not all of the auto retailers are created equal. These
three auto retailers have the best combination of fundamentals and
the Zacks Rank in the sector. All three are Zacks Rank #2 (Buy)
- Lithia Motors Inc.
- Asbury Automotive Group
- Autonation Inc.
1. Lithia Motors
Lithia Motors is the 9th largest auto retailer in the United States
with 88 stores in 11 states. It has both rural and urban stores
which allows it to be a good indicator of what is happening in the
On Apr 24, it beat the Zacks Consensus Estimate by 16%. Same store
sales growth was phenomenal, growing by 18.8%. New cars same store
sales jumped 22% while used car same store sales rose 21.5%.
Heck, even Service, Body & Parts was strong, with same store
sales up 7%.
Lithia also guided higher, the 13th consecutive quarter it has done
Forward P/E= 13.7
Expected EPS growth in 2013= 22%
Zacks Rank #2 (Buy)
2. Asbury Automotive Group
Asbury Automotive is among the largest auto retailers with 76 auto
retail stores across the United States.
On Apr 24, it reported its fourth consecutive record quarterly
results. Like Lithia, new and used car sales were strong. New car
same store sales jumped 13.9% and used car same store sales rose
Forward P/E= 13.3
Expected EPS growth in 2013= 15.8%
Zacks Rank #2 (Buy)
Autonation is the largest of the auto retailers with 262 new
vehicle franchises in 15 states. It recently began a rebranding
campaign to bring all of its stores under the Autonation brand. It
has completed 30% of the rebranding.
New car same store sales rose 6% while used car same store sales
Forward P/E= 15.2
Expected EPS growth in 2013= 12.1%
Zacks Rank #2 (Buy)
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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She
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ASBURY AUTO GRP (ABG): Free Stock Analysis
AUTONATION INC (AN): Free Stock Analysis Report
LITHIA MOTORS (LAD): Free Stock Analysis Report
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