Peter Lynch once said, “buy what you know”. For this post, perhaps we should say “buy what happens to you”….
During the last week of 2016, the brakes on my wife’s car failed. No the pads did not wear out. Nor did the drums. A no, nobody cut the brake lines, but the result was basically the same and could have been equally disastrous.
We have an older model Chevy Suburban whose brake lines were corroding and just happened to pick a “convenient” time to burst.
Note: I really do not understand how this is not a recall since most everyone I talk to about older GM models knows about this and can relate a similar “repair” story. GM even has a kit just for this purpose so people do not have to refabricate parts and installation.
My wife was driving our son and his friends back from basketball camp and after she had dropped everyone off at their respective homes and gone up and down some major hills, she was traveling along a four lane road back home when another car pulled out from a side street. Now normally this should not be an issue but this person felt inclined to swerve across three lanes in front of her instead of just pulling out into the first right-hand lane. And of course it was at this point that she discovered that the brakes had failed. Fortunately nothing bad happened but it was scary.
So we called the tow truck and had the Suburban towed to our local brake shop. It took them a whole extra day to get around to checking it out because of the current backlog. Then another three days to get the parts ordered and perform the repairs. At the time I didn’t think too much about this because it was the holiday weekend and they were on a skeleton crew, but still it was terribly inconvenient to be down to only one car.
Needless to say this event was the genesis of much conversation. You know, stuff like movies are made out of:
– “How to escape out of a car under water.
– “How to stop a run-away car”.
And, the pros and cons of a floor/pedal emergency brake vs. a hand brake near the drivers seat.
Fast forward a day or two past getting the Suburban back and my daughter asks if I can pick her up at the local Merchants Tire and Auto if she drops her car off for an oil change.
“Sure, I can do that”.
Well about 20 minutes later she calls and says she is taking her car to Jiffy Lube because Merchants says it will be 2 days before they can get around to it and that the next “open” appointment they have is 2 weeks away.
“Really? Two days for an oil change?”
“So you don’t need me to pick you up? Are you going to just wait at Jiffy Lube?”
“To what? Pick up or Wait”
Well, about an hour later I get a frantic call from my daughter who is yelling speaking quite loudly …
“What Did They Do To My Car!”
“It just sped up and wouldn’t stop and I almost crashed and every time I turn it on it just races really fast and it scared the !@#$ out of me and They Broke My Car!”
Well, to make a long story short the throttle cable in her car runs right next to the air filter cover and got knocked out of its brackets as they were doing their “inspections”. The lead tech even drove down the road to help out and make things right. I was hoping to get my daughters money back since they screwed up and nearly caused a serious accident. But all she got was a coupon for a free oil change, which is pretty useless since she vows never to go back to Jiffy Lube ever again.
However, she did comment on how she knew exactly what to do based on our discussions about the suburban, no brakes and run-away cars.
Sometimes the lord works in mysterious ways.
I just wish he didn’t have such a flair for the dramatic.
So what does all this have to do with stocks and investing?
Well thinking about how busy the brake shop and Merchants were, I started thinking that perhaps this season might be a good time for auto repair businesses. Unfortunately, Merchants is private. So is Midas, AAMCO, PEPBOYS, and a whole host of others. However, there are some publically traded auto part companies which still exist and could be worth consideration. After all, regardless if you you’re your car to the shop or do it yourself, one still needs to purchase the parts. Two of the more popular and well-known brands are AutoZone and Advanced Auto Parts.
Though these could be added to any watch list, what I usually do is see how they rank when compared to their peers.
- AAP and AZO rank 4th and 5th in their group (according to IBD)
- AAP recently reported better than expected sales and an upgrade.
- AZO has also seen better than expected results.
- Both have benefited from the Trump Rally.
However, they both have pretty poor overall composite ratings.
Again, maybe not a terribly bad thing if you think they might be good turnaround candidates.
When I look at peer groups within IBD it gives me a sense of how they are doing compared to their peers and, as you can see, gives me alternative stocks to research.
Since different systems classify, rate and rank stocks differently, I often go to other sites and run screens to see what else may pop up. In other words to cast a wider research net. One such site I use is FINVIZ.
For my screen, I kept it pretty simple. I looked for stocks with positive EPS, Sales, and ROI. Depending on my results, number of stocks, I sometimes add selection criteria to narrow it down. In this case, I really did not have to.
I also expanded my research a little bit to include other auto part categories as well as companies which might be related to the field such as Tools and Accessories.
This is what I came up with and is a good starting point to do any additional research and comparisons.
||Cooper-Standard Holdings Inc.
||O’Reilly Automotive, Inc.
||Auto Parts Stores
||Magna International Inc.
||Auto Parts Wholesale
||Small Tools & Accessories
||Simpson Manufacturing Co., Inc.
||Small Tools & Accessories
What do you think of the prospects of the auto part industry?
Will their increased sales trend continue?