There are worse things an investor could do than pick stocks Peter Lynch would love. Lynch was one of the greatest money managers of all time, taking Fidelity Magellan from $20 million to $13 billion in 13 years and averaging 29% annual returns over that period.
He published two books that laid out his investing philosophy, One Up on Wall Street and Beating the Street, which gave the average investor the tools he used to rack up his awe-inspiring returns. What they bared was that there was no arcane secret behind Lynch's success; it is rather something anyone can achieve.
In short, it comes down to three simple principles:
- Buy what you know.
- Do your due diligence.
- Hold on to your stocks for decades.
Here's why aftermarket auto parts retailer Genuine Parts (GPC -0.97%) answers the description of a stock Lynch would love.
A business for all markets
Genuine Parts is an easy business to understand. It's best-known for its global chain of over 9,600 retail stores that primarily operate under the NAPA Auto Parts banner. This accounts for two-thirds of total revenue, but it also runs an industrial replacement parts and supplies business serving more than 107,000 customers in North America and the Australasia region.
In operation since 1928, Genuine Parts has been through all manner of business and economic cycles and survived the Great Depression, two World Wars, numerous political upheavals, recessions, and a global pandemic.
It remains just as strong today and is primed for another round of growth, because it almost doesn't matter whether the auto market itself is hot or not. In tough times, the used car market will ensure consumers will want new parts to keep their vehicles on the road, while in good times, new car sales ensure a flow of vehicles that will eventually need maintenance.
Ready to hit the highway
Right now, we're in a difficult period where new car sales are falling and are expected to be down 7% from the 15 million vehicles sold in 2021.
Ongoing supply chain problems brought on by continuing reverberations from the pandemic, coupled with computer chip shortages that have automakers shipping vehicles without non-safety-related chips installed, have led to lower inventories and fewer sales.
These factors have also caused new car prices to soar. Kelley Blue Book says the average price of a new car in the U.S. was $48,182 in July, a new record, surpassing by $139 the previous record, set in June.
In normal times that would mean a boom for used car sales, but there's been an inventory shortage there, too, which has led to surging prices. While the increases have eased some to an average used car price of $24,000 in July, that average was as high as $25,500 in February. Pre-pandemic, in July 2019, the average cost of a used car was $17,500.
That's led to a narrowing of the gap in savings for buying used. Whereas a used car used to cost 49% of the price of a new car, today it costs 61%. What that means is that consumers will want to keep their existing cars in running condition and will be needing replacement parts from NAPA stores and others to maintain them.
A rich history of returns
Last quarter, Genuine Parts notched record sales of $5.6 billion, a 17% increase over the year before, while earnings nearly doubled to $2.92 per share, causing the auto parts leader to raise top- and bottom-line guidance for the full year.
Genuine Parts also shares its success with its investors by paying a dividend that currently yields 2.6% annually. It has paid dividends for nearly 100 years and has increased the payout every year since 1948, making it a member of the elite group of stocks known as Dividend Kings.
With a payout ratio of 46%, Genuine Parts' dividend is a safe, secure line of income that investors can count on to grow for decades to come. It's a money-making machine that Peter Lynch would love.