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3 Automotive Retail Stocks to Buy as Car Sales Lead Retail Boost

Christopher Vargas

US retail sales rose moderately in August, primarily driven by a 1.8% jump in auto buying. The Commerce Department reported that retail sales increased by 0.4% last month, signaling that the economy continues to grow despite uncertainty about the trade war; this gain surpassed economists’ estimates of 0.2% growth. The higher retail sales last month suggest consumer spending remains stable, which in turn will feed into the broader pace of economic growth for the quarter.

Additionally, consumer sentiment rose more than expected, as consumers felt more optimistic about the current and future economic conditions, according to preliminary data released by the University of Michigan. September consumer sentiment rose to 92 from 89.8 in August beating economists’ expectations of 91. Consumer spending is the main driver of the US economy, accounting for more than two thirds of economic output. Retail sales in particular account for about 25% of personal-consumption expenditures.

Let’s take a look at what automotive retail stocks have led the sector gains and can make solid pickups for a portfolio.

Lithia MotorsLAD is one of the largest automotive retailers that features most domestic and import franchises. Its stores serve urban and rural populations throughout the Western and Midwest United States. The stock has soared 66.5% year-to-date, outpacing the broader auto retail market which has risen 42% this year. The industry as a whole has a solid Zacks Rank average, earning it a spot in the top 3% of our Zacks Industry Rank. LAD has an average EPS surprise of 8.04% over the past four quarters. In fiscal 2019, LAD’s bottom line is projected to jump 12.84% to $11.26 per share and revenue could see growth of 5.46% to $12.47 billion. The stock boasts a Zacks Rank #1 (Strong Buy).

Asbury Automotive GroupABG is an additional automotive retail company an investor can consider. Asbury is an industry giant, and offers an extensive range of automotive products and services including new and used vehicle sales and related financing, insurance, and vehicle maintenance. The stock has surged 51.7% YTD outpacing its respective industry. The company has surpassed our earnings estimates for the past seven quarters, with an average EPS surprise of 10.06%. Fiscal 2019 estimates look solid for ABG as they predict earnings to hike 10.67% and for revenue to climb 4.87% to $7.21 billion. The stock is currently a Zacks Rank #1 (Strong Buy) with solid earnings revisions.

Sonic AutomotiveSAH is based out of Charlette, North Carolina, and is the fifth largest automotive retail company in the US. The company operates over 100 locations across 13 states and represents 24 different car brands. Sonic reported strong same-store sales in Q2, with a 4.5% year over year gain; the automotive retailer’s earnings surged over 77% in Q2 as well. The company’s substantial bottom line growth is expected to continue in Q3 as our estimates are projecting a 33.14% surge to $0.57 per share. Revenue is expected to gain 5.3% to $2.6 billion. The stock has been on an absolute tear in 2019 thus far, gaining 125.4% YTD, easily outpacing the industry and its peers. The stock sports a Zacks Rank #1 (Strong Buy).

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