The auto sector is drawing investor attention, with opportunities emerging across retail, electric vehicle supply chains and the fast-growing salvage auction market. Analysts see potential in companies that can navigate shifting demand, supply chain changes and long-term industry transformation.
BNN Bloomberg spoke with Garrett Nelson, senior vice-president and equity analyst at CFRA, who outlined three hot picks in the sector, highlighting why he believes each has room to run.
Key Takeaways
- AutoNation is returning significant cash to shareholders through buybacks, with earnings stability supported by high-margin parts and service operations.
- Aptiv is positioned to benefit from rising electric vehicle adoption and demand for connected-car and smart mobility technology.
- Copart dominates the salvage auction market, with strong margins and balance sheet strength, even as its stock trades near 52-week lows.
- Auto industry trends include EV expansion, consumer shifts and supply chain changes, creating both risks and opportunities.
- Investors may find long-term value in companies adapting to technological disruption and industry transformation.
Read the full transcript below:
ANDREW: Today on Hot Picks, we’re covering auto stocks. Let’s bring in Garrett Nelson, senior vice-president and equity analyst at CFRA. Thank you for joining us. Can we jump right in? AutoNation is one of your favourites. Remind us what they do and why you like the stock.
GARRETT: Thanks for having me back. AutoNation, in our view, is a best-in-class auto dealership. What really distinguishes them from peers is their generous cash returns to shareholders. They’ve been buying back a ton of stock in recent years. In fact, they’ve reduced their outstanding share count by more than 50 per cent since the end of 2020. Like other auto dealerships, their earnings peaked in 2022, but we’re very bullish on the intermediate-term earnings growth outlook over the next two to three years. That’s really driven by lower interest rates, which we think will boost auto sales.
ANDREW: And what kind of dealer are they? Just conventional, or do they also operate online?
GARRETT: They have both online capabilities and physical dealerships. They sell a mix of new and used vehicles and are one of the largest U.S. dealerships in terms of locations. Auto dealerships are somewhat misunderstood, because what really drives their earnings is the parts and service operations, which are very high margin — gross margins of about 50 per cent compared with the low-teens margins for vehicle sales. That’s what has provided earnings stability for AutoNation and should help drive growth going forward.
ANDREW: You mentioned parts, but for dealers in Canada, insurance and financing are also a huge source of profit.
GARRETT: Absolutely. That’s another high-margin business segment for these companies.
ANDREW: Your next idea is a company called Aptiv. Remind us what they do and where you see promise.
GARRETT: This is one of the larger auto suppliers, and we like that they’re focused on higher-growth areas of the market, such as connected-car technologies, mobility and smart vehicle technology. They’ve posted superior earnings growth — in the first half of this year, their EPS was up about 40 per cent year over year. Like AutoNation, they’ve also been buying back stock. Last August, they announced a US$5-billion share repurchase authorization, about 25 per cent of their market cap. We like them relative to other auto suppliers that don’t have the same growth profile. Some focus on seating or other components, but Aptiv is more exposed to higher-growth areas. The stock is hovering near a 52-week high, and we think it could break out to a new high.
ANDREW: So they do both hardware and software, but their focus is electronics and all these gadgets cars come with these days.
GARRETT: Exactly. It’s a play on the secular trend of automobiles becoming more high tech, with connected-car technology, mobility and the future of transportation.
ANDREW: And then there’s Copart, a huge player in auto auctions. What’s the attraction?
GARRETT: This might be the largest S&P 500 company that most people have never heard of. They have a market cap north of US$40 billion and are the largest auto auction company. The industry is essentially a duopoly, and Copart is a very high-quality business. Yet the stock is trading near a 52-week low, which we think is unjustified. They have gross margins of about 45 per cent, which is almost unheard of in this space. They also have a very strong balance sheet, with US$4.7 billion in net cash that continues to grow thanks to strong free cash flow. A secular tailwind is the aging U.S. vehicle fleet, which is creating more volume for auto auctions.
ANDREW: Why has the stock dropped so much lately?
GARRETT: Their execution has been inconsistent, and it tends to be more of a lower-beta name. Meanwhile, the broader U.S. market has been hitting new highs, and Copart has fallen out of favour. But this is a good opportunity to buy quality at a steep discount.
ANDREW: And they’re a huge player in salvaged vehicles, selling to dismantlers, rebuilders and used-vehicle dealers. Great stuff. Thanks very much for joining us.
GARRETT: Thank you.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
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| AN NYSE | N | N | N |
| APTV NYSE | N | N | N |
| CPRT NASDAQ | N | N | N |
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This BNN Bloomberg summary and transcript of the Sept. 30, 2025 interview with Garrett Nelson are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
