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Is Lithia Motors, Inc. (LAD) The Best Mid Cap Value Stock To Invest In?
We recently compiled a list of the 10 Best Mid Cap Value Stocks To Invest In. In this article, we are going to take a look at where Lithia Motors, Inc. (NYSE:LAD) stands against the other best mid cap value stocks to invest in.
Mid-Cap Stocks are Better in the Near Term
An easing cycle coupled with an upcoming election creates quite the environment for differing opinions to co-exist. On October 9, Jill Carey Hall, Bank of America Global Research head of U.S. small and mid-cap strategy and senior U.S. equity strategist, joined ‘Squawk Box’ on CNBC to discuss her bullish stance on mid-cap stocks, especially in the near term.
Hall stresses that small-cap stocks have been underperforming since the 50 basis point rate cut, going against historical expectations of small-caps performing well in such cases. She emphasized that investors are focused on stocks with stronger fundamentals and small-cap stocks are currently stuck in an earnings recession. We have yet to see a recovery season for small caps, the way we have been seeing it for slightly larger stocks, Carey adds.
Carey shares that mid-cap stocks are likely to be a “better hedge” in the near term, as they boast stronger fundamentals and have better earnings trends. Overall, she believes that mid-cap stocks have historically performed better than small-caps and are, therefore, a better area to target. She also emphasized that one rate cut is not going to solve the re-financing risk that small-caps, especially companies in real estate and tech, inherently come with.
She adds that investors must focus more on themes rather than specific sectors. However, with the current economic backdrop and a soft landing in sight, she advises investors to remain inclined towards stocks with positive revisions, higher quality, and stronger dividend yields, given that as the Fed continues to cut rates, money is expected to be driven more into equity income.
Carey also shares that the current economic environment has been weak but we may see acceleration after this quarter, keeping in mind that current GDP and jobs data have been “encouraging.” While she upholds an element of uncertainty, she remains focused on less risky and high-quality stocks. As investors look to the Fed as a catalyst for the market, high-quality stocks trading at discounted valuations are likely to reap greater benefits.
Our Methodology
To come up with the 10 best mid-cap value stocks to invest in, we used the Finviz stock screener. We set the market capitalization filter to range between $2 billion and $10 billion and the Forward P/E filter to under 15. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted primarily in ascending order of the number of hedge fund holders as of Q2 2024 picked from our database and secondarily in order of their forward P/E and market capitalization.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is Lithia Motors, Inc. (LAD) the best Mid Cap Value Stock To Invest In?
An assembly line of electric cars moving along a production line.
Market Capitalization as of October 28, 2024: $9.06 Billion
Forward P/E as of October 28, 2024: 11.3
Lithia Motors, Inc. (NYSE:LAD) ranks fifth on our list of the best mid-cap value stocks to invest in. The automotive dealership company has more than 101,000 vehicles across 300 locations in the US, over 1,000 vehicles in 15 locations in Canada, and more than 4,000 vehicles in 151 locations in the United Kingdom.
Home to more than 51 brands, the company is regarded as one of the fastest-growing companies in the United States. In the third quarter of 2023, Lithia Motors, Inc. (NYSE:LAD) logged the highest third-quarter revenue in company history, at $9.2 billion, up by 11% year-over-year. In addition to that, the company generated $223 million in net income during the same quarter.
In Q3 2024, Lithia Motors, Inc. (NYSE:LAD) initiated multiple store acquisitions to align with its expansion goals. The company completed acquisitions of three stores from the Duval Motor Company in Jacksonville and Gainesville, Florida. The acquisitions will help Lithia Motors expand its footprint in the import and luxury segments and increase its overall geographic coverage.
Overall, Lithia Motors, Inc. (NYSE:LAD) is a popular choice among investors, explaining why 35 hedge funds were bullish on the stock at the close of Q2 2024. In addition to that, the company is also pretty liquid, as it ended the third quarter with more than $1.1 billion in cash and cash equivalents. Analysts are also bullish on the stock and their median price target of $380 points to an upside of 11% from current levels.
“During the quarter we added three new holdings: Graco, Lithia Motors, Inc. (NYSE:LAD), and Asbury Automotive. We purchased shares in Lithia Motors and Asbury Automotive, two of the largest auto franchise dealer groups in the country, owning a diversified portfolio of dealerships ranging from Toyota to Ford to Mercedes. Investors tend to pay a lot of attention to the level of new car sales, but dealers actually earn more in profits from parts and service than they do from selling new cars, and this steady business provides a nice ballast throughout the economic cycle. In addition, we believe these businesses have a long runway to create value via consolidation of this fragmented industry, as the advantages of scale are increasing.”
Overall, LAD ranks 5th among the 10 best mid cap value stocks to invest in. While we acknowledge the potential of LAD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LAD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
