Buying thinly traded stocks generally isn't a good idea.
The lack of liquidity makes it hard for big players to quickly
unwind or build a significant position. Quality funds seldom buy
Exceptions, however, happen.
Penske Automotive Group (
) trades about 300,000 shares daily. That figure might not be
thin if Penske were a high-priced stock.Intuitive Surgical (
), for example, trades less than 300,000 shares daily. However,
with a per-share price near 500, Intuitive can't be called thin.
With Penske's share price in the 30 neighborhood, it qualifies as
Yet, at least one quality fund has been building a position.
Through the third quarter, Fidelity Contrafund has added to its
position in each of the past four quarters.
Penske owns and operates 171 franchised car dealerships in the
U.S. and Puerto Rico, 170 internationally and 30 collision repair
centers. The international dealerships are primarily in the U.K.,
but Penske also has dealerships in Germany and Italy.
About 38% of sales are from outside the United States. Penske
doesn't hedge against currency fluctuations.
On Tuesday, Penske reported it acquired a BMW and Mini
dealership in Ontario, Calif. The move will add $125 million in
The customer base is mostly upscale. About two-thirds of
revenue are tied to premium brands, such as Porsche, Audi, BMW
Penske grew earnings 53% in 2010 and 35% last year. Revenue
expanded 9% and 11%.
The Street expects a 22% EPS pop this year on 13% revenue
Q3 results will be reported Oct. 30 at 2 p.m. ET. Analysts
expect earnings to advance 14% on a 10% sales gain.
Return on equity was 15% last year, up for a third year in a
row. While that's below the 17% minimum ROE associated with elite
stocks, Penske's ROE was 17.3% in Q1 and 16.6% in Q2.
Penske pays a quarterly dividend of 12 cents a share, which
represents an annualized yield of 1.6%. In February 2009, the
company suspended the dividend. The dividend was reinstated in