While the automotive industry is known for its cyclical ups and downs, the auto parts industry has been a very attractive industry for quite some time. It's almost like the razor-razor blade analogy; once a car is sold, it will need servicing for the rest of its life, which today can exceed 20 years, and the older a car gets, the more frequent are parts and service visits.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Well Known Standouts
Almost everyone is familiar with the standouts in the industry, AutoZone (NYSE:AZO) and Advance Auto Parts (NYSE:AAP), but many smaller names remain ignored or dismissed. Carl Icahn's Federal-Mogul (Nasdaq:FDML) supplies power train and safety technologies worldwide; products include engine pistons, piston rings, brake pads and fuel pumps. Shares have fallen hard over the past several months, to $10 from about $20. The company has a market cap of over $1 billion, generates roughly $7 billion in annual revenue and over $600 million in EBITDA, or less than five times EV/EBITDA. Today, the company can be bought for around its book value.

Lesser Known Standouts
Superior Industries (NYSE:SUP) focuses on one car part: aluminum wheels. The majority of the company's business comes from General Motors (NYSE:GM), Ford (NYSE:F) and Chrysler, although the company also supplies parts to BMW and Nissan. The company has a market cap of over $440 million, no debt and a ton of cash on its balance sheet - nearly $200 million to be exact. That ensures that investors will continue to get nearly a 4% dividend yield currently being paid to investors.

Someone also has to do the repair work involving car parts. While many folks can handle the easy tasks, they often defer to repair shops. After falling some 30%, due to a failed buyout offer, Pep Boys (NYSE:PBY) at about $9 offers an attractive way to play an interesting business. Earnings are expected to accelerate over the next couple of years as the company realigns it business with a focus toward smaller, more profitable service centers.

SEE: The Industry Handbook: Automobiles

The Bottom Line
Cars have become essential assets for those that own them. During the housing crisis we saw more people default on mortgages than car payments. The need to maintain and repair them will remain a necessary expenditure in the eyes of consumers.

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  7. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  8. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  9. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  10. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center