Car dealership stocks have something in common with Tesla stocks. Both are proving to be havens as the rest of the auto industry reels from the Russian invasion of Ukraine.
Ever since Russia attacked in late February, car stocks have been, well, horrible.
(symbol: F) and
(GM) are down about 13% and 5%, respectively. Stocks of auto parts giants
(MGA) are down 28% and 21%, respectively.
Oil prices are skyrocketing, so one might have expected electric vehicle stocks to hold up better. Higher oil prices make gasoline more expensive, increasing the cost advantage of refueling electricity.
However, only Tesla (TSLA) stock appears to benefit. Shares are up around 1.3% since the start of the invasion, compared to declines of 1.3% and 0.9% respectively for the
Dow Jones Industrial Average.
(RIDE), meanwhile, are down 27%, 10%, and 30%, respectively.
Seaport analyst Glenn Chin wrote on Monday that while investors typically flock to more reliable coin stocks, like Aptiv, during times of heightened volatility, that has not been the case this time around. Stock prices clearly show this.
Car dealerships could offer more security. “Not only are auto retailers largely insulated from the direct impact of this unfortunate situation, but several follow-up effects are actually positive for them,” Chin wrote.
For starters, the situation between Russia and Ukraine has further constrained global auto production, which was already hampered by a lack of semiconductors. Smaller new car inventories mean higher prices for new and used vehicles, which benefits retailers.
And, of course, US-listed car dealerships do most, if not all, of their business in America.
He seems to be right. Shares of US-listed auto dealers have risen more than 3%, on average, since the invasion began.
Chin assesses the shares of
(KMX) at Buy. His price target is $140 per share.
Others on Wall Street agree. Around 78% of analysts covering listed stocks are buy, while the average buy rating ratio for S&P 500 stocks is around 58%. Analysts’ average price target for CarMax shares is around $143, while the stock was at $02.37 around noon Monday.
Other traditional dealerships evaluated by the purchase that Chin follows include:
Group 1 Automotive
(AN) owns shares and does not have a price target for the shares. This also corresponds to street views. Only about 35% of analysts covering this stock price are buying. Analysts’ average price target is around $153 per share.
There could be good value in car and auto parts stocks after their recent declines. Magna shares are trading at less than 10 times estimated earnings per share for 2022. GM shares are trading at less than 6 times.
But CarMax, Lithia, Sonic and Group 1 are perhaps more convincing. They trade on average around 8 times the estimated earnings of 2022 on average. This low price/earnings ratio comes with a stability that the rest of the industry does not offer.