Here is a solid way to play the automotive industry, and it isn’t buying stock in car companies themselves, suggests Jimmy Mengel, editor of The Crow's Nest.
I’m a big fan of picks-and-shovels plays that tend to weather storms better than the final product itself. I’m talking about auto parts. Personal consumption of auto parts reached an all-time high of $50 billion in June of last year.
With the availability of coronavirus vaccines and traffic coming back to pre-COVID levels globally, auto parts stocks are only going to grow. Especially with the record number of used cars that have been sold over the past year.
AutoZone Inc. (AZO) is the nation's leading retailer and a leading distributor of automotive replacement parts and accessories with more than 6,000 stores in U.S., Puerto Rico, Mexico, and Brazil. Each store carries an extensive line for cars, sport utility vehicles, vans, and light trucks, including new and remanufactured hard parts, maintenance items, and accessories.
AutoZone has an exceptional growth record. It has also proved extremely resilient to the pandemic, as it has posted record earnings in each of the last two years.
Over the last decade the stock has rallied 390%, crushing the S&P 500 (up 269%). It’s up 46% over the past year and is expected to keep growing. In the first 36 weeks of fiscal 2021, which ended in August 2021, AutoZone grew its revenues and its earnings per share by 20% and 46%, respectively, to new all-time highs.
It has also had an aggressive stock buyback programs that should help the company’s EPS grow in the future. AutoZone authorized a buyback of an additional $1.5 billion of common stock, and has done so to the tune of $27 billion over the past decade.
The company also has a P/E ratio around 18, which is better than the 20-plus average for most stocks of its kind. We’re adding AutoZone as a defensive play to the long-term portfolio.