The average age of a car in the United States is rising. It is now just over 10 years, while the average mileage on a passenger car is over 150,000. What does this mean for auto part retailers? Increasing demand and increasing profits. Companies such as AutoZone (AZO), O'Reilly's (ORLY), and Advanced Auto Parts (AAP) have been taking advantage of the increase in demand ever since in the financial crisis of 2008. Consumer confidence went to new lows and it seemed as though no one was willing to buy a new car. Thus, consumers had to stick with their unreliable old vehicles - meaning more visits to auto part specialists for routine check-ups and maintenance. With uncertain economic views and moderate consumer confidence, these specialty shops are seeing continuing increases in margins and higher net incomes.
One interesting aspect of these stocks are their low betas. Beta is a measure of risk, measuring performance in relation to the whole financial market, such as a benchmark like the DowJones or S&P 500. If a stock has a negative beta (i.e. < 0 ), then if the market is going down, then the negative beta stock will typically go up - hence the negative correlation, and vice versa. Average beta for this industry is right around 0.50, meaning a more conservative investment, and a good hedge against market downfalls.
Take a look at these charts after their recent pullbacks - a good entry point in my opinion.
(AZO)
(ORLY)
(AAP)
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