Leo Fasciocco is a technician focused on "breakout" stocks; in his Ticker Tape Digest, two recent such breakout ideas were both from the out-of-favor auto parts sector: O'Reilly Automotive (NASDAQ: ORLY) and Autozone (NYSE: AZO).
The advisor explains, "Auto parts stocks may see strong product demand as more people keep their car and not buy a new one."
"O'Reilly Automotive is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the U.S, with annual revenues of $3.1 billion.
"It operates 3,277 stores in 28 states, serving both do-it-yourself customers and professional installers. Auto parts stocks could benefit from the slowdown in the economy due to a contraction in new car sales. People may keep their cars and fix them up. Thus, they will need auto parts.
"The stock recently jumped to $32.74 after the company reported better than expected earnings; this pushed the stock out from a nine-week base. It is now within range to overcome its all-time high at $38.84.
"ORLY reported fourth quarter net of 32 cents a share, down from 35 cents a year ago. However, it was better than the 30 cents a share expected by the Street.
"The stock has been doing well, appreciating 18% the past 12 months. That compares with a 40% drop in the S&P 500 index. Technically, the stock has been in an intermediate-term consolidation. However, near term it is on the move again.
"The stock's technicals are very good. The momentum indicator is bullish and the accumulation - distribution line has broken out to a new peak. Institutional sponsorship is excellent. The largest fund holder is 4-star rated American Funds AMCAP with a big 5.4% stake. It was a recent buyer of 459,000 share.
"We are targeting the stock for a move to 40. A key will be for the stock to follow through.
