Should You Continue to Hold After-Market Auto-Parts Retailers?

Advance Auto Parts, AutoZone, and O'Reilly Automotive shares have crushed the markets. Can they continue as the economy grows stronger and new car sales pick up?

Feb 10, 2014 at 9:30PM

Whether it's because credit tightened in the wake of the financial crisis, Americans have less to spend, or the automakers are just making vehicles that last longer, the fact is that the cars on the road today are older than ever. Ford (NYSE:F), General Motors (NYSE:GM), and Chrysler have all struggled in recent years as consumers have held on to their old cars for longer. In August, the average age of vehicles on the road hit an all-time record of 11.4 years.

But those old cars, even if they're made better, still need some occasional maintenance and minor repairs. That's where the aftermarket auto-parts dealers come in. And they've been cleaning up. The nation's publicly traded big players -- Advance Auto Parts (NYSE:AAP), AutoZone (NYSE:AZO), and O'Reilly Automotive (NASDAQ:ORLY) -- have outpaced the S&P 500's 52-week return of 16.83% with gains of 58%, 34%, and 44%, respectively.

But can their market-beating trends continue, or are their best days behind them as the economy picks up and automakers start to see better sales figures?

The way I see it, even if new-car sales increase, that means more cars on the road -- and, thus, more cars that need potential repairs. Economists expect 260 million U.S. vehicles to be in operation by 2018, up from 247 million today. There should be a 2.4% bump just this year.

Of course, newer cars aren't as likely to need major repairs, but it'll take a few years of solid returns from the auto dealers before a significant number of older vehicles are retired. So even in a worst-case scenario, investors have plenty of time to make money here before revenues could significantly decline.

The best thing investors can do is to watch the reports for the number of vehicles on U.S. roads, the average age of those vehicles, and the yearly sales figures for new vehicles -- and use those figures to determine when a possible slowdown for the auto-parts dealers may be on the way.

Need more information about the auto industry?
U.S. automakers boomed after World War II, but the coming boom in the Chinese auto market will put that surge to shame! As Chinese consumers grow richer, savvy investors can take advantage of this once-in-a-lifetime opportunity with the help from this brand-new Motley Fool report that identifies two automakers to buy for a surging Chinese market. It's completely free -- just click here to gain access.

Matt Thalman owns shares of Ford. The Motley Fool recommends Ford and General Motors and owns shares of Ford and O'Reilly Automotive. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information