With the new year comes a review of one's positions. Over the next few weeks I'll be looking to close out some of my old CAPScalls, initiate some new ones, and single some of the old and new out as my top picks. One of my first top picks is going to have to be Dorman Products
Well I'm runnin' down the road, tryin' to add to my portfolio
Between 2006 and 2010, total sales of automobiles in the United States declined 18%, but the bulk of that can be attributed to a 30% decline in new auto sales. The average age of a car or truck in the United States also reached a record 10.8 years in 2011, up from 8.4 in 1996. It's been a terrible time to try to sell a car, especially a new one, but a great time to keep an old one running.
These trends explain why an auto parts store like AutoZone
Don't let the size of Dorman's catalog drive you crazy
Dorman Products in particular has capitalized on the trend toward keeping used autos around longer. Over the past five years, sales have risen 75%, while net income has more than tripled.
Dorman sells approximately 122,000 different replacement parts, about 21% of which were previously only available through the original equipment manufacturer. Dorman's massive catalog and ability to produce lower-cost, hard-to-find items gives it a strong competitive advantage, which factors into the 35% gross margin it's able to command, putting it near the top of its peer group.
RBC has three stocks on its mind
Dorman outshines its competition in more ways than just gross margin, but it doesn't get much analyst love. RBC Capital Markets, for instance, recently tagged three stocks for its top picks in the industry, none of which were Dorman.
One of them, Tenneco
Another RBC top pick, Johnson Controls
We may lose and we may win
The move toward keeping cars longer has been a steady and long-term trend. Even if new car sales start to pick up, these new cars are likely to be kept for a decade or longer, ultimately requiring a great deal of maintenance and replacement parts to stay running. With a massive catalog of hard-to-find parts and a stable, more profitable business than its competitors, Dorman Products is in a great position to benefit. I think this is a $50 stock, which means there's about 25% more upside left. It's already in my CAPS portfolio, but I'm now flagging it as one of my top picks.
Add these companies to My Watchlist to follow along and see how the industry develops.
Fool contributor Jacob Roche holds no position in any of the companies mentioned. Check out his Motley Fool CAPS profile or follow his articles using Twitter or RSS. The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.