As the American consumer weakens, and in my estimation - shall remain weak for an extended duration - we put the spotlight on the Automotive Replacement & Accessories sector a few months back (
Jan 15, 2009: Thesis - Automotive Replacement and Accessories) Since then, all four names we mentioned in the piece, even the major laggard of the group have surged despite a very bad January and February for the market.
Autozone (AZO)
O'Reilly Automotive (ORLY)
Advanced Auto Parts (AAP)
...even lowly Pep Boys (PBY)
Worst quarter since the 1930s? Not in some quarters. I'm posting some more stories from the press now that the mainstream investing media is catching on... keep in the mind, these are counter cyclical plays and if you are of mind the economy will be recovering "soon" or we'll be back to normal "by the 2nd half of 2009" or even early 2010, these stocks will fall out of favor. I am not of that mind and believe a consumer facing ever higher unemployment, wage pressure, and ever higher living costs will continue to focus on keeping up what they have instead of flipping into a new car every 3-4 years like the "good ole days". Which leads to me to another thesis which I'll present in the coming days.
One other "risk" might be the government's push to do everything in their power to make you buy new cars - there is now a lot of talk about mimicking the German plan to subsidize new cars in return for turning in clunkers (
Mar 3, 2009: German Auto Sales Boom to 10 Year High Due to Government Scrap Bonus) I think that will help new car makers on the margin, but as a whole the U.S. savings rate has been nowhere near the Germans the past decade so without the house ATM (which the government is also trying to reignite) new car sales will be depressed for quite a while. Remember, Americans were resorting to 6, 7 and indeed even 8 year car loans (mini mortgages) even WITH the house ATM at the peak on insanity a few years back. (
Feb 13, 2008: Car Loans Being Stretched to 7 Years) (September 2007:
Is a 10 Year Car Mortgage Far Off?)
The first piece is
from Investors Business Daily and is specific to our holding in O'Reilly Automotive - again with this name there is more uncertainty with the near term due to a large integration but some very nice long term synergies. Along with Autozone they have top notch management.
- Americans have cut back sharply on new auto purchases. But that only means they're driving their old cars longer.
