11 Most Undervalued Auto Stocks According to Hedge Funds
In this article, we discuss 11 most undervalued auto stocks according to hedge funds. If you want to see more stocks in this selection, check out 5 Most Undervalued Auto Stocks According To Hedge Funds.
The automotive industry has been plagued by multiple problems apart from the COVID-19 pandemic, such as the constrained Asia Pacific backdrop and the war in Ukraine. The shortages in microchips and labor are also impacting every level of the automotive supply chain. However, the development of electric vehicles is a significant global trend, with particular focus on improving battery performance and expanding charging infrastructure. This results in increased research and development by vehicle manufacturers, who are continuing to invest in EV technology despite other challenges they may be facing.
The fast pace of development in the EV industry indicates that manufacturers have an optimistic outlook about the future of EVs. New advancements are regularly being made, bringing the industry closer to the concept of "Vehicles 2.0". Larry Keyler, Partner and Global Automotive Leader at RSM US, said on January 18:
“The development of autonomous vehicle technology has slowed down somewhat, as manufacturers redirect and refocus on the refinement of the electric vehicle. These are certainly being driven by the regulatory landscape, which at the moment is accelerating a path to wide-scale EV adoption. Governments in North America, Europe, and Asia Pacific are all implementing their own initiatives, not to mention the UN, and auto makers are under pressure to deliver”.
However, Bernstein analyst Daniel Roeska wrote in an investor note in December 2022:
“There is active demand destruction in the industry, given inflation, interest rates, and energy costs − but so far, this has mostly impacted the backlog.”
Investors looking to explore the auto space can also check out 11 Best Autonomous Vehicle Stocks To Buy, 10 Fastest Growing Car Companies in the World, and 10 Best Auto Stocks To Buy. Undervalued stocks are those that trade below what they are worth, and these stocks tend to outperform during bear markets and economic recessions. Some of the most undervalued auto stocks according to hedge funds include General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and AutoNation, Inc. (NYSE:AN).
We scanned Insider Monkey’s database of holdings of 920 elite hedge funds tracked as of the end of the third quarter of 2022 and picked the 11 most undervalued auto stocks that have P/E ratios of less than 10 as of January 19. The list is arranged in ascending order of the number of hedge fund holders in each firm.
Most Undervalued Auto Stocks According To Hedge Funds
11. Sonic Automotive, Inc. (NYSE:SAH)
Number of Hedge Fund Holders: 21
P/E Ratio as of January 19: 5.23
Sonic Automotive, Inc. (NYSE:SAH) was incorporated in 1997 and is based in Charlotte, North Carolina. It operates as an automotive retailer in the United States, selling new and used cars, light trucks, and replacement parts. The company also provides vehicle maintenance, manufacturer warranty repair, paint and collision repair services, arrangement of extended warranties, service contracts, financing, insurance, and other aftermarket products. With a P/E ratio of 5.23 as of January 19, Sonic Automotive, Inc. (NYSE:SAH) is one of the most undervalued stocks to buy according to hedge funds.
On October 31, Benchmark analyst Michael Ward maintained a Buy rating on Sonic Automotive, Inc. (NYSE:SAH) but lowered the price target on the shares from $71 to $62. He reduced his earnings assumptions to reflect lower industry volume assumptions, noting that dealers are likely to carry 30% less inventory going forward. The analyst believes that the financial performance at Sonic Automotive, Inc. (NYSE:SAH) will remain above historical levels and that the model will change for the better.
According to Insider Monkey’s data, 21 hedge funds were long Sonic Automotive, Inc. (NYSE:SAH) at the end of September 2022, compared to 20 funds in the last quarter. Dmitry Balyasny’s Balyasny Asset Management held the biggest stake in the company, with 633,755 shares worth $27.4 million.
Like General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and AutoNation, Inc. (NYSE:AN), Sonic Automotive, Inc. (NYSE:SAH) is one of the most popular auto stocks among smart investors.
10. Penske Automotive Group, Inc. (NYSE:PAG)
Number of Hedge Fund Holders: 24
P/E Ratio as of January 19: 6.19
Penske Automotive Group, Inc. (NYSE:PAG) is a Michigan-based diversified transportation services company that operates automotive and commercial truck dealerships. The company operates through four segments – Retail Automotive, Retail Commercial Truck, Other, and Non-Automotive Investments. It is one of the most undervalued auto stocks to invest in. The company repurchased 6.4 million units of common stock for $675.1 million year-to-date through October 25, 2022.
On October 6, JPMorgan analyst Rajat Gupta lowered the price target for Penske Automotive Group, Inc. (NYSE:PAG) from $125 to $110 and kept a Neutral rating on the shares. Citing ongoing macro challenges, the analyst also dialed back estimates for 2023 "materially" to reflect a mild recession and hitting a new normal by 2025.
According to Insider Monkey’s third quarter database, Penske Automotive Group, Inc. (NYSE:PAG) was part of 24 hedge fund portfolios, compared to 22 in the last quarter. Cliff Asness’ AQR Capital Management is the leading stakeholder of the company, with 485,534 shares worth $47.8 million.
9. Stellantis N.V. (NYSE:STLA)
Number of Hedge Fund Holders: 25
P/E Ratio as of January 19: 2.88
Stellantis N.V. (NYSE:STLA) is a Netherlands-based company that engages in the design, engineering, manufacturing, distribution, and commercialization of automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, and production systems worldwide. On January 9, Stellantis N.V. (NYSE:STLA) announced that it signed an agreement with Element 25 to secure significant supplies of raw materials for battery electric vehicle production. Under the five-year agreement, Element 25 will provide battery grade, high purity manganese sulfate monohydrate to Stellantis N.V. (NYSE:STLA) for use in electric vehicle battery packs.
On October 14, Berenberg analyst Adrian Yanoshik maintained a Buy recommendation on Stellantis N.V. (NYSE:STLA) but lowered the firm's price target on the shares to EUR 19 from EUR 21.
Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital held the largest stake in Stellantis N.V. (NYSE:STLA) at the end of the third quarter of 2022, comprising 29 million shares worth $349.35 million.
8. Allison Transmission Holdings, Inc. (NYSE:ALSN)
Number of Hedge Fund Holders: 26
P/E Ratio as of January 19: 8.07
Allison Transmission Holdings, Inc. (NYSE:ALSN) is an Indiana-based company that designs, manufactures, and sells commercial and defense fully-automatic transmissions for medium and heavy-duty commercial vehicles, as well as medium and heavy-tactical U.S. defense vehicles worldwide. It is one of the most undervalued stocks to invest in according to smart investors.
On January 12, Allison Transmission Holdings, Inc. (NYSE:ALSN) announced that it has partnered with Nikola Corp (NASDAQ:NKLA) to carry out testing of its Class 8 battery-electric vehicle and hydrogen fuel cell electric vehicle at Allison Transmission Holdings, Inc. (NYSE:ALSN)’s state-of-the-art Vehicle Electrification + Environmental Test (VE+ET) Center. At the facility, Allison imitates real world applications and climate conditions, allowing original equipment manufacturers to lower product development and validation timelines, in order to bring innovative technology and vehicle systems to market quicker and more effectively.
According to Insider Monkey’s data, 26 hedge funds were bullish on Allison Transmission Holdings, Inc. (NYSE:ALSN) at the end of September 2022, compared to 25 funds in the prior quarter. Harris Associates is the largest position holder in the company, with more than 5 million shares worth $172.70 million.
Here is what Oakmark Funds has to say about Allison Transmission Holdings, Inc. (NYSE:ALSN) in its Q2 2021 investor letter:
“Allison Transmission is a niche industrial company with roughly 80% market share in truck transmissions. Its products provide the company’s customers with critical advantages, including fuel economy, reduced emissions, reliability and total-cost-of ownership. The importance of Allison Transmission’s products and its dominant market position have historically given it strong pricing power. Yet, in the year leading up to our purchase, the company’s shares underperformed peers by more than 40 percentage points. Although we believe the company’s fundamentals are still as strong, if not better, than its peers, investors have worried about how commercial vehicle electrification will affect Allison Transmission’s long-term business. We believe that the company’s investments in next-generation products will enable it to maintain its position as an industry leader, even as technologies change. Furthermore, we believe that our investment carries limited downside risk because Allison Transmission’s shares sell at 10x free cash flow, which ascribes almost no value to the future. In addition, the company’s management team diligently returns capital to shareholders.”
7. Group 1 Automotive, Inc. (NYSE:GPI)
Number of Hedge Fund Holders: 30
P/E Ratio as of January 19: 5.55
Group 1 Automotive, Inc. (NYSE:GPI) is a Texas-based company that operates in the automotive retail industry, specializing in the sale of new and used cars, light trucks, vehicle parts, service and insurance contracts, vehicle financing, and automotive maintenance and repair services. On November 16, Group 1 Automotive, Inc. (NYSE:GPI)’s board of directors increased the common stock repurchase authorization by $161 million to $200 million. The company also distributed a $0.39 per share quarterly dividend on December 15, representing a 2.6% increase from its prior dividend of $0.38.
On October 6, JPMorgan analyst Rajat Gupta upgraded Group 1 Automotive, Inc. (NYSE:GPI) to Overweight from Neutral with a $210 price target. The analyst noted that the setup for franchise auto dealers into Q3 earnings is the most negative he has encountered since the pandemic. He upgraded Group 1 Automotive, Inc. (NYSE:GPI) based on his revised price targets for the group.
According to Insider Monkey’s Q3 data, Group 1 Automotive, Inc. (NYSE:GPI) was part of 30 hedge fund portfolios, compared to 24 in the earlier quarter. Anthony Bozza’s Lakewood Capital Management is the largest position holder in the company, with 331,726 shares worth $47.4 million.
Here is what ClearBridge Investments Small Cap Value Strategy has to say about Group 1 Automotive, Inc. (NYSE:GPI) in its Q1 2022 investor letter:
“We also initiated a new position in Group 1 Automotive (NYSE:GPI), in the consumer discretionary sector. Group 1 Automotive is one of the leading auto dealership groups in the U.S. and the U.K. Through our analysis, we believe the current stock price already discounts a considerable decline in revenue and profits due to concerns about elevated used car prices and high gross margins per unit. However, we believe this does not reflect the underlying strength of the company’s diversified business line and flexible cost structure. Ultimately, we believe the company will prove more durable than the market expects and be a long-term value creator for the portfolio.”
6. The Goodyear Tire & Rubber Company (NASDAQ:GT)
Number of Hedge Fund Holders: 32
P/E Ratio as of January 19: 3.58
The Goodyear Tire & Rubber Company (NASDAQ:GT) was incorporated in 1898 and is headquartered in Akron, Ohio. The company manufactures, distributes, and sells tires for automobiles, trucks, buses, aircraft, motorcycles, earthmoving equipment, and mining and industrial equipment under the Goodyear, Cooper, Dunlop, Kelly, Debica, Sava, Fulda, Mastercraft, and Roadmaster brands.
On November 29, Argus analyst David Coleman downgraded The Goodyear Tire & Rubber Company (NASDAQ:GT) to Hold from Buy. The analyst warned that the company is facing pressure from accelerating costs, unfavorable currency translation, and softness in the EMEA region, also trimming his 2022 EPS view to $1.40 from $2.08 and his 2023 view to $1.63 from $2.63.
According to Insider Monkey’s data, Ken Griffin’s Citadel Investment Group is the biggest stakeholder of The Goodyear Tire & Rubber Company (NASDAQ:GT) as of the end of the third quarter of 2022, with 3.24 million shares worth $32.7 million.
In addition to General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), and AutoNation, Inc. (NYSE:AN), The Goodyear Tire & Rubber Company (NASDAQ:GT) is one of the most undervalued auto stocks according to hedge funds.
Here is what ClearBridge Small Cap Value Strategy has to say about The Goodyear Tire & Rubber Company (NASDAQ:GT) in its Q3 2022 investor letter:
“We exited a number of stocks during the period, including Goodyear Tire & Rubber (NASDAQ:GT). We sold our position in Goodyear due to the cavalcade of concerns including the company’s elevated debt levels, inflationary pressures from higher input prices, continued manufacturing challenges in the auto industry and complications with the company’s manufacturing volume. With substantial exposure to the automotive industry through other portfolio holdings, we elected to consolidate our exposure within those higher-conviction holdings.”
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Disclosure: None. 11 Most Undervalued Auto Stocks According To Hedge Funds is originally published on Insider Monkey.