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The Top 3 Car Stocks to Buy Now Whether it's undervalued automakers, auto dealers thriving amidst heavy demand, or disruptive companies that could change the industry for the better,...

By Sean Sechler

entrepreneur daily

This story originally appeared on MarketBeat

Depositphotos.com contributor/Depositphotos.com - MarketBeat

Even though there are valid concerns surrounding how the global chip shortage will affect automobile sales in the short term, there are still plenty of intriguing car stocks to consider adding at this time. With several long-term trends that are transforming the auto industry such as the rise of electric vehicles and pent-up demand given strong consumer savings levels and low interest rates, various auto companies are poised to generate strong earnings in 2021 and beyond. Keep in mind that the chip shortage won't last forever, and if the highest quality car companies face selling pressure in the near term it could be a great buying opportunity.

It's important for investors to note that many of the major car companies have focused on reducing their operational overhead as a result of the pandemic, which is something that could certainly benefit shareholders in the long term. Whether it's undervalued automakers, auto dealers thriving amidst heavy demand, or disruptive companies that could change the industry for the better, there's something for every investor to explore at this time. Let's take a look at the top 3 car stocks to buy now.

General Motors (NYSE:GM)

Although General Motors stock has been in a downtrend since June, it's hard to find a better deal out there amongst the top automakers based on traditional valuation metrics. The stock currently trades at a forward P/E ratio of 7.55, which is lower than the company's rival Ford Motors and a true bargain compared to Tesla's 137 forward P/E. What's really interesting here besides the valuation is the company's strategy for attacking the electric vehicles market, as General Motors plans to offer 30 new EVs globally by the year 2025.

While the company has struggled to gain traction with its previous EV offerings, new models like the Hummer EV and Cadillac LYRIQ could be just what the company needs to take market share from competitors. Investors could also be undervaluing just how strong the GM brand name is in international markets such as China, as the company recently announced it delivered more than 750,000 vehicles in China in Q2, up 5.2% year-over-year. The stock could be heading for a test of the 200-day moving average, which would be a solid entry point for long-term investors to consider. General Motors reports its Q2 earnings on August 4th, so keep an eye out for the reaction to the company's numbers in early August.

AutoNation (NYSE:AN)

If you are looking for a car stock that is performing better than ever thanks to current market conditions, look no further than AutoNation. It's the largest automotive dealer in the United States and a company that just delivered record-breaking numbers in Q2. AutoNation reported an all-time record of $4.83 GAAP EPS in the quarter, up 52% year-over-year, and is confirmation that heavy demand is benefitting the company in a big way. Q2 revenue was also a record sum for the company at $7 billion, up 54% year-over-year.

What's intriguing about AutoNation is the company's large-scale dealer network that allows it to quickly allocate its inventory based on demand. The company also recently permanently reduced its headcount by 14% and is investing in digital tools that could lead to more operational efficiencies and cost savings going forward. This is a high-quality retail auto stock that has been showing serious relative strength since its earnings date and could have plenty of upside given that new and used car demand is expected to outpace supply until 2022.

Carvana (NYSE:CVNA)

For most consumers, the worst part of car shopping is the physical act of going to the dealership. Negotiating with pushy used car salesmen, figuring out the best financing options, and the amount of time you need to spend in order to drive away with your new vehicle are all reasons why Carvana is a great car stock to buy now. The company operates an e-commerce platform for buying used cars and helps consumers avoid many of the downsides associated with used car buying, which means it is a disruptive business.

Although this is a company that has yet to report a quarterly profit, its unique buying experience and rapidly growing network of vehicles make it absolutely worth a look from investors that are interested in growth stocks. It's worth noting that Carvana is the eighth largest vehicle retailer in the U.S. by revenue and is aggressively increasing its production capacity by investing in reconditioning centers all over the country. The company has a great opportunity to gain market share thanks to the current heavy demand for used cars, and investors should look out for Carvana's Q2 earnings report when it is released on August 5th for insight into how the company is navigating the current market environment.

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