July 22, 2008
The signs are all around us. I've lost count of the number of new car sales lots I've seen closing shop in recent months. The noteworthy losses plaguing shares of American icons Ford (NYSE: F ) and General Motors (NYSE: GM ) remove all doubt. American consumers just aren't buying new cars like they used to, and a trend this big simply must have a Foolish investment hypothesis somewhere on the assembly line.
Although demographers are noting a "New Urbanism" taking shape as high gas prices and home foreclosures lure many suburbanites back into the cities, costly commutes will remain a fact of life for countless workers with deep roots in the 'burbs. Assuming that scores of suburbanites continue to rely upon their automobiles, it seems possible to me that fewer new car sales may ultimately lead to more auto repairs.
For its part, parts distributor Genuine Parts Company (NYSE: GPC ) reported record earnings last week, bringing in more than $133 million for a 7% rise in earnings per diluted share. The company distributes auto parts (primarily sold at retail through the NAPA name), industrial parts, office supplies, and electrical supplies. Another sign this space could be a good counter-cyclical play? Strong results from auto-parts retailers AutoZone (NYSE: AZO ) and Advance Auto Parts (NYSE: AAP ) .
Looking for a less obvious play on the space? Try Schnitzer Steel (Nasdaq: SCHN ) . Only a fraction of Schnitzer's results come from auto parts, but for a variety of reasons, I believe Schnitzer is a steal.
Only time will tell whether my auto repair hypothesis has merit. But if it does, I suspect that investors currently buying into this quiet space could see significant repairs to their own portfolios in the near future.