3 Used Car Stocks to Buy Instead of Carvana

The used car market is booming again. Right now, it's worth a whopping $160.4 billion, up $7.52 billion since the end of 2021.

And the end of 2021 was only a month ago.

This is excellent news for investors and businesses alike. The reason for this fast growth is twofold...

First, demand for cars has increased dramatically in the past few months as new car deliveries are delayed, and consumers are looking for alternatives.

Second, the persistent supply chain shortages push consumers to rely on used car businesses more than ever. Manufacturers aren't delivering new cars on time, and the dealerships don't have the models consumers want.

Prices for used cars have increased by over 40%, pushing the market to snowball - good news for businesses in this industry and investors who want to capitalize on this trend.

As of January 2022, Morgan Stanley labeled popular online used car company Carvana a "buy." But with bearish sentiment coming from other market experts, we have to wonder if there are better options.

Spoiler: There are.

The chief investment strategist at Money Morning, Shah Gilani, has taken note of this market's growth potential. In fact, he highlighted CarMax Inc. (NYSE: KMX) as the stock to bet on right now.

The company has been growing rapidly, and we expect it to continue in the coming year.

And we have two more stocks that could bring over 55% in combined earnings. Read on to find out what they are and why you should buy them right away.

Used Car Stocks Are the Next Big (Profitable) Thing

The used car market is exploding in popularity and profitability. The global market for used cars was worth $397.5 billion in 2017 and should grow to $522.9 billion by the end of 2022.

That's over $200 billion in new wealth!

There are several reasons for this growth, including the increasing affordability of used cars, the increasing popularity of services like Uber and Lyft, and the increasing environmental awareness of consumers.

Investors can capitalize on this growth by investing in used car stocks. However, there are some risks associated with investing in them.

The Risks of Buying Used Car Stocks

For one, an economic downturn could cause used car demand to plummet.

This market is flying because there's a surplus of consumers buying cars. If that changed, used car sales would go down, company revenue would follow, and the market would fall as fast as it rose.

Another risk is competition from new car dealerships, which may offer better deals on new cars. If used car companies can't maintain their prices, their revenue and share earnings could suffer.

Despite the risks, this is still a very lucrative market. So here are three used car stocks you should buy today.

The 3 Best Used Car Stocks to Buy Right Now

The global market for used cars projects 8% growth this year, so now is a great time to buy used car stock. Here are a few picks that we expect to blow up in the coming year.

CarMax Inc. (NYS: KMX)

Money Morning expert Shah Gilani has highlighted Carmax (KMX) as the used car stock to buy.

The company reported earnings earlier this month. And while the stock was down on the news, Shah believes there is still a good opportunity to make money.

For the 2021 Q4, revenue grew 65% to $8.5 billion, beating estimates of $7.378 billion. On the bottom line, earnings climbed 15% to $1.63, easily beating estimates of $1.45.

There was also a massive increase in sales for the company. That growth is right on trend with the current state of the used car and truck market.

Investors who buy this stock now could earn back their investment very quickly, as well as see continued growth in the years to come.

AutoNation Inc. (NYSE: AN)

AutoNation has been in business for over 30 years and has a history of success. If you're looking for a safe investment that could earn you a lot of money, buying AutoNation stock could be a great option.

The company saw a 5% increase in revenue and a 12% increase in adjusted earnings per share in its most recent quarter. This month, its financial performance was even better, with a 7% increase in revenue and a 14% increase in adjusted earnings per share.

AN is well positioned to benefit from the growth of the automotive market, making it a solid buy. Analysts expect it to continue growing in the years ahead, and its stock is likely to increase in value as a result.

Penske Automotive Group Inc. (NYSE: PAG)

It looks like PAG is one name that's doing well lately. Over the trailing month, PAG shares have climbed nearly 8%. And in the final week of 2021, the stock was on track to gain almost 2%.

Interestingly, PAG has affiliated dealerships that cover a broad income spectrum. On one end of the spectrum, PAG is connected to multiple premium German car brands. As a result, these brands are more insulated from economic fluctuations than brands that appeal to a more modest income.

PAG is also partnered with budget brands that have a wide appeal. This gives PAG exposure to a growing market sector. If the economy does well, these brands are likely to do well.

All in all, PAG looks like a strong investment option for anyone looking for stability and growth potential.

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