This month I will take a look at a sector that does not tend to grab the headlines and that is auto dealerships. In this buy everything online from Amazon world buying a car is still a very much off line business, yes you can research online but the final transaction for most is likely to take place in a dealership.
There are 11 listed auto dealership stocks (some cover commercial vehicles) and overall they are on relatively low valuations with P/Es well under the S&P500, some also pay good dividends. One stock which has caught my eye and I will cover shortly is Penske Automotive (PAG) which has seen some massive buying from the chairman & CEO who clearly believes that his stock is undervalued. There is no Exchange Traded Fund that covers these stocks as a whole.
US auto sales have been fairly robust since the end of the financial crisis however we are starting to see some slowdown in auto sales so far in 2016. From 10.4 million US sales in 2009 to 17.5 million in 2015 it’s been good times for auto sales and even if we do slow down it’s still a thriving market. Light trucks and SUVs are a bright spot and with fuel prices remaining low choosing a bigger engine model is not as much of a concern.
So let’s look at two specific names in this sector
Penske Automotive (PAG) 30%+ upside
Penske Automotive Group is an international transportation services company that operates automotive and commercial vehicle dealerships principally in the United States, Canada, and Western Europe, and distributes commercial vehicles, diesel engines, gas engines, power systems and related parts and services principally in Australia and New Zealand. PAG employs more than 23,000 people worldwide and is a member of the Fortune 500 and Russell 2000.
Penske has a good spread dealerships with majority being premium cars and 25% of their revenue comes from BMW – Mini.
The CEO and Chairman Roger Penske recently bought $8.5 million worth of shares which is a serious investment and vote of confidence. Even after the recent move up the forward P/E is 11 and the stock pays a dividend giving a yield of 2.4%. PAG is up 12% YTD and the stock trading at $46 could be at $60+ in the next 12 months.
CHART:
http://finviz.com/chart.ashx?t=PAG&ty=c&ta=0&p=m&s=l
Group 1 Automotive (GPI)
Group 1 Automotive, Inc., through its subsidiaries, operates in the automotive retail industry. It sells new and used cars, light trucks, and vehicle parts; arranges vehicle financing; sells service and insurance contracts; and provides automotive maintenance and repair services. They own and operate 199 franchises, 152 automotive dealerships, and 35 collision centres that offer 32 brands. The company also owns dealerships in the UK and Brazil.
GPI is having a weak 2016 down 18% so far but overall the business looks sound and trading on a P/E of 14 and the falls from the 2015 highs seem to be overdone. Shares are trading at $60 and could be at $80+ in the next 12 months.
A note on both of the above – they have exposure to the UK market and there has been some worries after the Brexit but so far UK sales are holding up well so fears seem overdone. GPI 2015 revenues included 9% from the UK and 6% from Brazil. PAG 2015 revenues from international markets totalled 39% with 35% from the UK.
http://finviz.com/chart.ashx?t=GPI&ty=c&ta=0&p=m&s=l
If you prefer a dealership with no international exposure then look at Litha Motors (LAD) 100% US revenue on a forward P/E of 10 and paying a small dividend. Stock is down around 20% so far this year but I think it can regain that fall in the next 6 to 8 months.
http://finviz.com/chart.ashx?t=LAD&ty=c&ta=0&p=m&s=l
Trading veteran Vince Stanzione has been trading for over 30 years and has produced a home-trading course at www.fintrader.net He stresses that before you try trading it’s worth getting some training. He is also the New York Times bestselling author of The Millionaire Dropout published by Wiley.
