In a weak market, about 75% of stocks generally follow the overall direction of the indices. There are some stocks showing sound fundamentals and technicals that are taking a breather now, along with other NYSE and Nasdaq names. MoneyShow contributor Kate Stalter looks at three auto-parts retailers that may be setting up for further price gains.
One retail sub-sector has been a consistent winner in recent years: auto parts. Do-it-yourselfers have resorted to repairing their existing set of wheels or “new to you” used cars, rather than going into further debt for a brand new model.
The beneficiaries of that trend have been companies such as AutoZone (AZO), Advance Auto Parts (AAP), and O’Reilly Automotive (ORLY).
Of that group, AutoZone is the largest company, with a market cap north of $12 billion. It trades 393,000 shares a day, not the greatest liquidity.
Nonetheless, as an S&P 500 component, it trades in fairly stable fashion, as funds indexed to the benchmark index hold their shares, rather than running for the exits or loading up on more.
The stock has advanced more than 17% year-to-date, as of mid-session Tuesday. It’s slumped along with the market in recent sessions, but downside trading volume has been muted.
Sales growth has slowed in the past three quarters, but analysts expect earnings to continue increasing at double-digit rates, with growth of 16% and 14% in the next two years.
The company reports its fiscal first quarter on December 6, with Wall Street eyeing income of $4.45 per share, a gain of 18% over the year-ago quarter. Sales are pegged at $1.89 billion, which would be an increase of 6%, continuing the pattern of sales growth deceleration.
However, over the longer haul, analysts see solid business for AutoZone, praising its operational efficiency. Operating cash flow has been increasing since 2005. That’s often a fundam! ental in dicator of good potential for share price growth.
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