Auto part stocks’ recovery
O’Reilly Automotive (ORLY) stock has risen 11.9% month-to-date, while AutoZone (AZO) has risen 13.7% and Advance Auto Parts (AAP) has risen ~12.0%. Meanwhile, the S&P 500 has fallen 1.1%. A broader market sell-off took a toll on auto part stocks in October, with O’Reilly, AutoZone, and Advance Auto Parts falling 7.7%, 5.4%, and 2.6%, respectively.
Improving industry-wide demand
In 2017, auto part companies largely struggled with softening demand, partly due to mild winters in parts of the United States. Despite recovering toward the end of 2017, auto component stocks ended the year in negative territory. AutoZone, O’Reilly, and Advance Auto Parts fell ~9.9%, ~13.6%, and ~41.1% last year, respectively, while automakers (XLY) General Motors (GM) and Fiat Chrysler (FCAU) rose 17.7% and 96.4%.
On the brighter side, these auto part companies’ demand has improved in the last three quarters, which could be why they recovered in November and are still trading in positive territory year-to-date. This year, AAP, AZO, and ORLY have risen 79.5%, 17.2%, and 49.2%, respectively, while Ford (F) and General Motors (GM) have fallen 23.8% and 9.9%.
The auto part industry’s outlook depends on the weather, as a harsh winter season can increase wear and tear on vehicles and boost the demand for auto parts. Damage to vehicles caused by Hurricane Michael could keep auto part companies’ demand strong in the fourth quarter.
In contrast, steep tariffs could affect auto part sellers’ business by hurting their profitability. Next, we’ll discuss analysts’ recommendations for these auto part stocks this month.