Optional Home Improvement – Mandatory Car Maintenance
It’s one thing to volunteer for a series of home improvement projects, but it’s quite another to be forced into it. What if those projects didn’t involve your home but involved something almost as important: your car? What if financial circumstances kept you from buying a new car, and you kept your vehicle a little longer than you expected?
Just like older homes, older cars need repairs too. Fuel pumps go out, and spark plugs quit firing. “Check Engine” lights also seem to go on when you need an inspection. At that point, you have one of two choices: take the car to the shop or fix it yourself. That’s exactly what is happening across the country. What is bad news for Detroit looks like great news for auto parts stores. As American families keep their vehicles longer than usual, parts stores are busier than usual.
Auto Parts Stores Thriving During Recession
That’s why these stocks have been doing so well. In recent weeks, Autozone (AZO), O’Reilly Automotive (ORLY), and Advance Auto Parts (AAP) have bounced significantly from their November lows. As Washington keeps throwing good money after bad to the auto industry, the real economy is humming along for auto parts. The new car lot may be full of stationary vehicles, but the parts department is busier than ever.
Why ORLY is the Best Parts Store
One of the best places to invest in this trend is O’Reilly Automotive (ORLY). There are a few reasons you should consider ORLY over the other stores. For one, they’ve been in acquisition mode in the past year. In February, ORLY acquired CSK Auto in an all-cash deal. According to Seeking Alpha, it’s a perfect geographic fit for O’Reilly. Although there have been some culture challenges between the two companies, ORLY seems to be integrating better management into its new West coast stores.
Second, O’Reilly looks more attractive on the books than the other parts companies. They have a higher internal growth than the other two companies (19% annualized since 1995) with lower price-to-book and debt-to-equity ratios. In this market, a strong balance sheet is almost everything. Smart investors usually find these hidden benefits.
Finally, O’Reilly looks great on the chart. Since late-November, ORLY has trended up at a steady clip. On 12/17, it closed above the early-fall resistance – a bullish move for the stock. Although it’s settled since then, we expect ORLY to continue an upward trek thanks to the fundamentals of a sluggish economy and necessary vehicle maintenance. Our proprietary Relative Strength Momentum gives O’Reilly a very high “66″ as of yesterday. To play auto parts strength in a weak economy, go with ORLY.
