Some very big guns in the value investment world have been buying stocks in the auto sector. That means it is time to take a look.
In November, Berkshire Hathaway’s (BRK.A) Warren Buffett disclosed a 13.98 million share stake in CarMax (KMX) valued at $284.3 million (9.6% of total). CarMax has 90 locations it sells mostly used autos from.
It also showed a new, 2.7 million share stake in Wabco Holdings Inc (WBC), a maker of braking and other vehicle control systems.
Sears Holdings (SHLD) Chairman Eddie Lampert has been very aggressive in adding to his AutoNation (AN) stake and still holds Autozone (AZO) shares. AutoNation is the behemoth of the bunch with 245 locations primarily in the Southeast US.
Leucadia National (LUK) recently agreed to a standstill after accumulating 30% of the outstanding shares of Amercredit (ACF), an auto loan servicing company. AmeriCredit’s focus is primarily in the Southwest US.
All are hovering around 52 week lows.
It should be noted that this is NOT an endorsement of the US auto industry via Ford (F) or GM (GM) as these are just terrible businesses due to legacy union costs.
They are stuck in a cost structure that dooms them. It is probably the only business the airlines can look at and say “at least we are not them”.
It is to say that American’s have to drive. It is also to say that despite the current housing environment, the auto loan business has, up until this point, held up much better. My thinking is that I can walk away from my home if I am stuck in a resetting mortgage that will break me and still rent an apartment. But, in most cases, I will still need a car to get back and forth to work from wherever I end up living.
Because of that, I am far less likely to let them take my car or walk away from it since once I do that, the odds of getting another one anytime soon in this environment is, well, minimal. It almost is a built in base for the industry.
I have a real hard time saying Buffett, Lampert and the boys at Leucadia are missing the boat on this one since since an investment with either in the last decade has crushed the market by a wide margin.
I will say that I am looking very closely at the sector an will most likely piggy back on something here.
Disclosure (“none” means no position):Long SHLD, none
