Are These The Best Automotive Stocks To Watch This Year?
Automotive stocks have been an interesting sector to watch in the last few months. That’s considering the automotive industry is a highly cyclical industry. The high volatility in the stock market this year brought the industry along on a roller-coaster ride. Much of that has been due to the outbreak of the novel coronavirus. The pandemic we are facing now proved to be a destabilizing trigger as many businesses are either closing down or filing for bankruptcies. For instance, once considered the gold standard for car rental companies, Hertz (HTZ Stock Report) filed for bankruptcy after missing lease payments for its vehicles.
From the national lockdowns across the globe in the past few months, businesses in the travel or mobility industries saw the most severe impact. Despite a great rally in airline stocks and cruise-line stocks in recent weeks, the resurgence of coronavirus cases tamed it all down. Even though the near term outlook of the automotive industry remains bleak, there may still be a reward for investors if the timing is right. It is worthwhile to take a look at how used car dealers stocks are performing amid the pandemic.
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CarMax Defied All Odds To Stay Profitable In Q1 2020
CarMax’s (KMX Stock Report) reported that its first-quarter earnings and revenues were down considerably. The company used to put up consistent double-digit sales increases in past years. That said, Q1 revenues were $3.23 billion, beating estimates by $565 million. But it’s still a 40% drop from last year. It wasn’t a surprise to see the profitability crashed in Q1. But the leading used car retailer revealed some encouraging metrics that some investors might be interested in.
The company held the line on pricing overall and even managed a 1.5% increase in used car prices. This helped lift its gross profit per vehicle in recent quarters. In addition, the company increased its cost-cutting efforts that sent the company’s expenses down by 24%. The success of the company’s progress in shifting more of its business online is putting a smile on investors’ faces. With more business conducted online, CarMax did streamline their overall business operations. They did so by reducing inventory levels in conjunction with reduced demand.
Now, CarMax has succeeded in reducing inventory, moving businesses to its digital sales channels, and slashing costs. These put CarMax into a stronger position compared to its industry peers. And the fact that it could generate a profit under such trying time deserves investors attention. Still, KMX stock investors will still have to be patient while waiting for the economy to get back on a stronger footing before we can finally see KMX stock take off.
How Is Carvana Making A Comeback Amid The Current Pandemic?
Carvana’s stock (CVNA Stock Report) is on one wild ride. CVNA stock fell 74% around mid-March and has since climbed over 330%. It is now up 30% year to date and last traded at $127.61. When the coronavirus panic came like a tsunami, even the shares of large businesses like Carvana are behaving like small-cap stocks.
Many consider Carvana as the Amazon (AMZN stock report) of car retailing. It is a surging e-commerce business that’s not comparable to brick-and-mortar rivals. Carvana is suddenly gaining all the attention as possibly one of the best auto stocks to buy now, thanks to its unique position as the largest online used car retailer in the U.S.
“We have more than doubled our revenue six years in a row,” says Carvana’s CEO, Ernest Garcia III. “In 2019 our differentiated supply chain enabled the fastest organic growth year of any automotive retailer in U.S. history.”
The massive resurgence in CVNA stock appears to be supported by the fact that the company’s business model is tailored to the current environment. For example, if you want to buy a used car these days, Carvana is the way to do so. Not only can buyers practice social distancing, they are also able to obtain a car for about $1,000 cheaper compared to traditional dealers. Carvana could really benefit from this pandemic to emerge as the winner in the car retailing sector. That said, will CVNA stock continue its 3-month rally?