Seeking Recession-Proof Stocks? These 3 Companies Look Attractive – TipRanks
As concerns about a possible recession grow, many investors are looking for recession-proof stocks. Of course, no stock is recession-proof, but some sectors are a bit more resistant to recessions than others. One such sector is auto parts retailers, and some other secular trends are making these companies look even more attractive. In this piece, we used TipRanks’ Comparison Tool to evaluate three auto parts retailers. The companies are O’Reilly Automotive (ORLY), CarParts.com (PRTS), and Advance Auto Parts (AAP),
Of course, some retailers in the space look better than others. There are different reasons to be bullish on each company, although CarParts.com looks riskier than the other two.
The Bull Thesis for Auto Parts Retailers
In general, the auto parts retail sector looks attractive right now. Chip shortages are still affecting new car sales. Of course, a shortage of supply means higher prices, and that’s certainly the case. New vehicle prices rose 12.6% year-over-year in June, while prices for used vehicles rose 16% from last year. Due to the higher prices, drivers are holding onto their vehicles for much longer than usual. Therefore, more people are buying auto parts because they’re fixing their vehicles instead of replacing them.
Auto parts retailers are also recession-resistant because they have the ability to pass their higher costs onto customers. Most people are willing or required to pay those higher prices because they need to continue getting from point A to point B, no matter how high the prices go.
As a result, even in the event of a recession, auto parts retailers should continue to grow, and the vehicle shortage won’t be going away anytime soon. Experts expect the shortage of new vehicles to last into next year or even 2024.
1. O’Reilly Automotive
O’Reilly Automotive shares have been moving higher over the last month, rising about 10.9% to wipe away the difficult period they had between the end of April and late June. The company used that weakness to buy back 2.2 million shares for $1.38 billion — a smart move in the current environment. O’Reilly repurchased another 400,000 shares between the end of the second quarter and the date of its earnings release.
Although the retailer missed the consensus estimates for earnings and revenue, its fundamentals are in decent shape. One metric that should be pointed out is the company’s net profit margin. Although it declined 120 basis points year-over-year in the second quarter, probably due to inflation, at 15.7%, O’Reilly has the best profit margin of all three of the retailers in this article.
The company also guided for comparable-sales growth for 2022 to be between 3% and 5%, which looks conservative compared to the 4.8% and 4.3% it recorded in the first and second quarters, respectively. O’Reilly also appears to have some long-term staying power, recording an increase of 30.4% in three-year comparable store sales stacks.
Turning to Wall Street, O’Reilly Automotive has a Strong Buy consensus rating based on nine Buys, two Holds, and zero Sells assigned over the last three months. At $744.73, the average O’Reilly Automotive price target implies upside potential of 5.6%.
At the other end of the spectrum, we have CarParts.com, which has been extremely volatile this year compared to O’Reilly. CarParts.com is up 17.6% in the last month, although it’s still off 24% year-to-date. However, investors who timed their purchases right have enjoyed some sizable …….