In 2021, one of the big stories for consumers has been the global shortage of chips used in new vehicles. While the news may have eased a bit this year, the problem certainly hasn’t gone away. In fact, auto industry experts told Automotive News Canada in late June that the shortage of new vehicles is expected to last “until next year, if not 2024.”
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- Two Trends That Support the Auto Parts Inventory Thesis
The issue has resulted in two trends, both of which support the thesis that auto parts inventories may be good buys right now. The first is that prices for new and used cars have skyrocketed over the past year. In June, Fortune reported that prices for new vehicles rose 12.6% year over year, while prices for used cars and trucks rose 16% from a year ago.
The other trend stems from this first trend. Higher vehicle prices are forcing drivers to hold on to their cars much longer than they otherwise would. As a result, the need for auto repairs and parts is much higher than it otherwise would be.
Additionally, the growing likelihood of a recession will further increase this need, making auto parts retailers a recession-proof industry. After all, people in most suburban and rural markets still need to keep their vehicles in good working order to get to work. Additionally, the average age of a vehicle on US roads is currently about 12 years old, a record high.
- Some of the biggest names in space
Investors need only look around their neighborhood to find the names of some of the biggest physical auto parts retailers. Of course, while some of these companies can be particularly good buys, they’re not all created equal. Among the most prominent retailers are Autozone Inc (NYSE: AZO) and O’Reilly Automotive Inc (NASDAQ: ORLY).
Shares of O’Reilly Automotive are up 2% year-to-date and 10% over the past month, with half of that gain occurring in the past five trading days. Unfortunately, the company missed its consensus estimate for second-quarter earnings per share of $8.78 per share and $3.7 billion in revenue, versus $8.99 per share expected. However, analysts had a lot of good things to say about it.
One of the best things about AutoZone is its $1.5 billion stock buyback program. The company’s stock is up 5% year-to-date, including about 1% in the past five trading days. AutoZone also posted strong beats to consensus estimates for its fiscal third quarter. The retailer reported earnings of $29.03 per share on $3.9 billion in revenue, compared to consensus figures of $26.21 per share and $3.7 billion.
- Don’t Forget E-Commerce Retailers
Despite the strength of physical auto parts retailers above, another company that should not be dismissed is Carparts.com Inc (NASDAQ: PRTS), an online retailer of auto parts in the United States, given the propensity consumers to shop online. , an online retailer should be a good option.
However, Carparts.com shares are down 23% year-to-date, even after rallying 28.5% over the past month, including 15% over the past five trading days. The company beat consensus estimates for the second quarter, posting earnings of 7 cents per share on revenue of $176.2 million. Analysts had expected losses of 3 cents per share on $175.8 million in revenue.
Overall, the auto parts sector looks robust due to current secular trends, so retailers would do well to check out the names above to see if they could fit into their portfolio. Of course, analysis and due diligence are always necessities for every investor.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.