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Auto dealerships are thriving on tight inventory
Theme 1: Auto Dealership Profitability Surge on Tight Inventory and Pricing Power
The dealership sector is benefiting from a perfect storm of favorable supply and demand dynamics. On the supply side, inventory remains constrained with used vehicle supply at 27 days versus normal 30-day levels, while wholesale used vehicle prices rose 1.1% in November according to the Manheim Used Vehicle Value Index. This tight inventory environment gives dealers significant pricing power and reduces the need for margin-eroding incentives.
On the demand side, interest rates for vehicle loans have declined approximately 30 basis points from October levels, improving consumer affordability without dealers sacrificing margins. The broader economic outlook supports sustained demand with forecasters projecting a "Goldilocks economy" with 2.6% GDP growth and new vehicle sales expected to reach 16.5 million units in 2025—a 4% increase from prior year.
Additionally, dealer consolidation is accelerating as large groups acquire stores to create operational efficiencies, further supporting industry profitability through economies of scale.
Stocks that would benefit:
AN: AutoNation Inc - The largest automotive retailer in the US with over 300 locations, positioned to benefit from the tight inventory environment with its diversified profit engine. The company's After-Sales and Customer Financial Services segments contribute approximately 75% of gross profit, providing stability amid fluctuating vehicle markets. AutoNation Finance has achieved profitability ahead of schedule in Q1 2025, rapidly scaling its portfolio to over $2 billion by Q3 2025, which enhances overall returns while capitalizing on the improved financing environment that supports consumer purchasing ability. Read More →
PAG: Penske Automotive Group - Premium automotive retailer leveraging its strong presence in luxury brands to maximize the current pricing power environment. The company's strategic focus on high-margin service and parts, coupled with advanced digital tools and AI-driven efficiencies, serves as a consistent profit driver that offsets volatility in new and used vehicle sales. Penske's diversified business model spanning premium automotive retail, commercial truck dealerships, and significant investment in Penske Transportation Solutions provides resilience against localized market headwinds while capturing the benefits of the tight inventory conditions. Read More →
ABG: Asbury Automotive Group - Strategically expanding its footprint through transformative acquisitions like Herb Chambers while actively optimizing its portfolio via targeted divestitures to enhance market positioning in the favorable margin environment. The company's Parts and Service division consistently delivers strong, high-margin growth, driven by an aging vehicle fleet and ongoing investments in technology and training, providing a resilient revenue stream. Asbury's aggressive rollout of the Tekion Dealer Management System promises significant long-term SG&A savings and enhanced operational efficiency, further supporting margin expansion in the current tight inventory cycle. Read More →
Theme 2: Electrical Construction Boom on Infrastructure Demand and Record Backlogs
The electrical construction sector is benefiting from multiple powerful demand drivers converging simultaneously. Infrastructure modernization requirements, particularly in power grid upgrades and industrial facilities, are creating sustained project pipelines. The ongoing industrial reshoring trend requires significant electrical infrastructure investment as manufacturing returns to domestic markets.
EMCOR's record backlog growth of 29% year-over-year across Network & Communications, Water & Wastewater, Institutional, and Manufacturing & Industrial sectors demonstrates the breadth of this demand. The company's ability to increase full-year guidance while maintaining strong margins indicates pricing power in a supply-constrained environment.
The sector's fundamentals are robust with total sales projected to increase 13% in fiscal 2025, reflecting the critical nature of electrical infrastructure in the modern economy. This demand is relatively inelastic as electrical systems are essential for virtually all commercial and industrial operations.
Stocks that would benefit:
PWR: Quanta Services - Specialized infrastructure contractor strategically positioned at the center of the electrical construction boom with its comprehensive capabilities across electric power, pipeline, industrial, and communications infrastructure. The company reported record backlog of $39.2 billion as of September 30, 2025, reflecting the multi-year revenue visibility that is central to the investment thesis. Quanta is actively expanding its "Total Solutions" power generation platform to address the rapidly increasing electricity demand from data centers, manufacturing, and electrification—directly capitalizing on the infrastructure modernization trend driving the sector's growth. Read More →
MTZ: MasTec - Infrastructure construction company demonstrating robust organic growth across its diversified segments, with Q3 2025 revenue nearing $4 billion (up 22% year-over-year). The company's strategic investments in capacity, workforce, and operational excellence are positioning it to capture the unprecedented demand from communications, clean energy, power delivery, and pipeline infrastructure projects. MasTec's record backlog of $16.8 billion provides substantial visibility for sustained growth, directly supporting the multi-year revenue visibility thesis that underpins the electrical construction sector's investment case. Read More →
EME: EMCOR Group - Executing a deliberate portfolio transformation to concentrate resources on domestic data center, healthcare, and manufacturing markets with superior structural growth. The company's integrated electrical-mechanical construction platform, enhanced by virtual design and prefabrication capabilities, delivers measurable efficiency gains that drive industry-leading returns. EMCOR's record Q3 2025 performance with revenues up 16.4% year-over-year to $4.3 billion and its 29% year-over-year increase in remaining performance obligations to $12.61 billion exemplify the record backlog growth that is fundamental to the electrical construction boom investment thesis. Read More →
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https://discord.gg/yePwyWrwJBThe content is for informational purposes only and should not be construed as financial or investment advice. We are not financial advisors. Consult with a qualified professional before making any investment decisions. Any actions you take based on information from this site are solely at your own risk. Past performance is not indicative of future results. Investments may lose value and are not guaranteed.
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