Before jumping into which auto stocks investors should consider buying let’s look at the numbers surrounding affordability. The numbers are pretty shocking, frankly. In June the average price paid for a new car was $48,808.
The positive news is that the average price fell since the beginning of the year. The bad news is that Cox Automotive’s vehicle affordability index remains extraordinarily high relative to levels over the past decade. The median consumer now requires 43 weeks of income to purchase a new vehicle. That figure had hovered around 34 for all but the last few years. The average new car payment is $771.
What does that mean? Well, for one, it means that used car stocks look increasingly attractive. Let’s look at a few of them.
CarGurus (NASDAQ:CARG) is my top pick among auto stocks that cater to the used vehicle market. The company is a rarity in that it provides positive EPS figures. It has the best fundamentals of the major used car firms in that regard. Other notable shares in the space including Carvana (NYSE:CVNA) are especially bad in that area and thus should be avoided.
CarGurus isn’t exactly doing well despite the somewhat shining review I just gave it. In fact, it is absolutely facing difficulties. Basically, CarGurus has seen its total revenues halve in the first half of 2023 and in Q2.
That’s not great. The decline is directly attributable to declining digital wholesale revenues. However, the company’s U.S. marketplace revenues continue to grow during both of the aforementioned periods. That should give investors reason to expect that CarGurus can continue to improve because affordability is still very low overall. Further, the company has continued to post net income during the entire period as its revenue base has shifted seismically. That is highly suggestive that CarGurus is well-run overall.
Shift Technologies (SFT)
Shift Technologies (NASDAQ:SFT) is a bit of a dark horse choice among auto stocks. It is a relatively unknown firm in the sector but it is managing changes in the space that have impacted other firms more severely.
Here’s what I mean. Shift Technologies released earnings on Aug. 10 showing that it too is dealing with a drastic downturn in sales. Q2 revenues fell by 79% which was in line with its first-half decline of 77%.
However, here’s the rub. Shift Technologies managed to reduce its losses drastically amid that downturn. The firm lost $20.57 million on $47.26 million in sales in Q2 after losing $36.88 million on $223.73 million in sales a year earlier. It’s very apt to state that Shift Technologies is tightening its operations in a very turbulent time. That’s often enough to impress investors that a given stock is valuable. That seems to be the case as SFT shares jumped up more than 7% on the news.
TrueCar (NASDAQ:TRUE) is another relatively obscure car stock that is focused on the used car market. It’s attractive because it offers a mix of low prices, at $2.21 per share, and roughly 50% upside based on significant analyst coverage. The company’s platform provides transparency tools for researching what others paid for their cars while also selling used vehicles.
The reason to consider purchasing TRUE shares lies not in its fundamentals. Unlike the firms listed above, TrueCar’s losses are increasing. However, its revenues declined much less during the same period.
Rather, the main point of attraction of TrueCar is its platform which saw 8.3 million unique visitors in the second quarter. That figure stood at 7.2 million a year earlier. In short, TrueCar is optimizing for eyes on its products. The vehicles the firm sells have an average sale price of $32,000 down from $33,000 a year earlier. Further, the creditworthiness of its consumer base continues to improve overall.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.