Auto parts stocks have taken a hit so for this year, tumbling 8.4% to rank among the market's worst-performing industries. A string of analyst downgrades – along with worries over mild winter weather, slowing economic growth, and stiffening online competition – have all dented investor enthusiasm.
While these factors do undoubtedly present challenges, the group remains supported by increasing vehicle customization, growing demand for car tech products, and the need for traditional automotive parts driven by improved fuel efficiency. Indeed, Global Market Insights estimates the global automotive aftermarket industry to top $1.4 trillion by 2024, up from $1 trillion in 2018, per globenewswire.com. Furthermore, increasing vehicle ownership in emerging markets such as China, India, and Indonesia presents growth opportunities outside of the United States.
From a technical standpoint, the three auto parts stocks outlined below have recently found buying interest at crucial support levels that may open the door to further gains. Let's review each company in more detail and discuss possible trading tactics.
O'Reilly Automotive, Inc. (ORLY)
Springfield, Missouri-based O'Reilly Automotive, Inc. (ORLY) sells automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States. The company, which serves both professional and do-it-yourself (DIY) customers, missed Wall Street's fourth quarter (Q4) earnings expectations by a penny; however, the bottom line still increased by 14.2% from the year-ago quarter. Meanwhile, comparable store sales registered 4.4% growth during the period. The auto parts seller also announced that it plans to increase its share repurchase program by an additional $1.0 billion, raising the aggregate authorization under the buyback to $13.75 billion. As of Feb. 13, 2020, O'Reilly stock has a market capitalization of $29.56 billion and has dropped 11% year to date (YTD).
After an initial earnings dip, the company's share price has stabilized at the $390 level, where it finds crucial support from a horizontal trendline connecting an array of prices over the past 12 months. Those who open a long position should set a take-profit order at $420 – an area where the stock may run into overhead resistance from the Oct. 24 gap low. Protect capital with a stop order placed beneath this month's low at $385.33.
Advance Auto Parts, Inc. (AAP)
Advance Auto Parts, Inc. (AAP) provides automotive replacement parts, accessories, batteries, and maintenance items for cars and trucks. The $9.41 billion automotive retailer reported Q4 adjusted earnings per share of $1.17 on revenues of $2.1 billion, representing top- and bottom-line growth of 3.3% and 52%, respectively, from the December 2018 quarter. To offset rising costs, the company continues to expand its product offerings and streamline its supply chain. Advance Auto Parts stock issues a small 0.18% dividend yield and has returned -16.13% since the start of the year as of Feb. 13, 2020.
After six weeks of steep declines, buyers have returned to the stock at the $130 level, defending the 52-week low set in mid-August. Traders should watch for the moving average convergence divergence (MACD) line to cross above its signal line – an indication of increasing upside momentum. Once in a position, anticipate a move back to $150, where the price finds resistance from the 50-day simple moving average (SMA) and the 61.8% Fibonacci retracement level. Keep losses minimized by setting a stop-loss order underneath the Feb. 10 low at $129.94.
AutoZone, Inc. (AZO)
AutoZone, Inc. (AZO) retails and distributes automotive replacement parts and accessories to DIY and commercial customers. The firm operates nearly 6,000 stores in the United States, with an additional 600 stores in Brazil and Mexico. AutoZone's continuing push in Latin America indicates its focus on opportunities in emerging markets. Analysts expect the company to disclose fiscal Q2 2020 earnings per share of $11.90, up from $11.49 in the same quarter last year. AutoZone shares have a market value of $25.03 billion and trade 10.72% lower YTD as of Feb. 13, 2020.
Since the company's earnings gap on Dec. 10, the bears have remained in firm control of proceedings. Those looking to buy the stock should seek an entry point in a zone of support between $1,050 and $1,075. Similarly to the case of Advance Auto Parts, traders may use a cross of the MACD line above its signal line as bullish confirmation before committing capital. Consider banking profits at $1,190 while managing risk with a stop placed under the YTD low at $1,042.92.