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3 reasons why I think Auto Trader shares could outperform in 2022

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Image: Toyota

I’m always on the hunt for stocks that could do well, not just over the next month, but over the next year and beyond. One stock that I think fits this bill is Auto Trader (LSE:AUTO). The automobile marketplace has seen a share price rally of 6.6% over the past year. However, looking forward I think that Auto Trader shares could be a good buy.

Used car demand moving higher

The first reason for my thinking revolves around higher demand than usual for used cars. There’s currently a global chip shortage. This impacts new car production, with some 1,400 chips being needed in some cars! The shortage has been blamed on low car demand during lockdown, which saw chips being diverted to electronic devices. With demand now back, car manufacturers are scrambling to get hold of them. 

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Some new models are currently expecting another year of delay before being back on schedule. How is this a benefit for Auto Trader shares? Well the business is home to private sellers and dealers looking to offload secondhand cars as well as new ones. At the moment, high demand is helping to fuel sales of secondhand cars. 

This benefits Auto Trader as it makes money from more cars being listed for sale. It also generates higher fees from cars that sell for higher values.

Electric car positioning

Another reason why Auto Trader shares could move higher into next year is due to positioning regarding electric cars. It’s no surprise that electric cars are the future. Auto Trader is aware of this and so has tweaked the search filter to enable specific requests including battery range and charge time. It’s also making use of the data it collects via Market Insights to grow the amount of electric car adverts.

I think this is a smart move and shows to me that the company has a finger on the pulse of the industry. By future-proofing the website and catering to this growing demand, it should be in a great place moving forward to capitalise on higher electric vehicle car sales going forward.

Auto Trader shares look attractive

Finally, I think Auto Trader shares will benefit from the continued push towards digital. The mobile app and website have been developed to enable customers to control more of the process online. For example, the Guaranteed Part Exchange function allows a quick and easy way to get pricing on a potential sale. The click & collect and home delivery functions are other online tools that make the user experience much cleaner if someone wants to buy a car online.

There are risks associated with buying stock in the company. With the push to digital, Auto Trader could alienate traditional buyers that want to physically go and see the vehicle first. Another risk is if we see another lockdown next year. This would stunt car demand and the ability to sell cars in general.

Overall, I think Auto Trader shares look a good buy and am considering buying now.

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Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

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jonathansmith1 has no position in any share mentioned. The Motley Fool UK has recommended Auto Trader. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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