Amid rising environmental concerns and inflating fuel prices, the recent shift in consumer interest in electric vehicles should bolster the auto parts industry’s growth prospects. Moreover, given the growing market for used cars, the need for auto parts is expected to keep up.
Furthermore, lucrative government initiatives, rapid technological advancements, and a shift of focus on car accessories should propel growth in the coming years. According to Research and Markets, the motor vehicle parts market is projected to grow at 7.9% from 2021 to 2026.
However, aggressive policy tightening by the Fed has increased car loan rates, dampening demand. Moreover, supply chain disruptions and lingering macroeconomic headwinds might harm the auto parts industry.
While fundamentally strong auto parts stocks O’Reilly Automotive, Inc. (ORLY), Bridgestone Corporation (BRDCY), and Garrett Motion Inc. (GTX) could be ideal additions to your portfolio, Luminar Technologies, Inc. (LAZR) might be best avoided considering its bleak fundamentals.
Stocks to Buy:
O’Reilly Automotive, Inc. (ORLY)
ORLY operates as a retailer and supplier of automotive aftermarket parts, tools, supplies, equipment, and accessories. The company also provides new and remanufactured automotive hard parts and maintenance items.
ORLY’s sales increased 9.2% year-over-year to $3.80 billion for the fiscal third quarter that ended September 30, 2022. The company’s gross profit increased 6.4% year-over-year to $1.93 billion. Its net income increased 4.8% from the year-ago period to $585.44 million, while its EPS rose 13.6% from the prior-year quarter to $9.17.
Street expects ORLY’s EPS for the fourth fiscal quarter (ended December 2022) to rise 1.2% year-over-year to $7.73. Its revenue is expected to grow 6.3% year-over-year to $3.50 billion in the same quarter.
Over the past six months, the stock has gained 24.1% to close its last trading session at $810.85. It has gained 11.5% over the past three months.
ORLY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade in Quality. The stock is ranked #21 out of 62 stocks in the A-rated Auto Parts industry.
Click here to access additional ratings for ORLY for Growth, Value, Momentum, Stability, and Sentiment.
Bridgestone Corporation (BRDCY)
Headquartered in Tokyo, Japan, BRDCY manufactures and sells tires and rubber products. It operates in two segments: Tires and Diversified Products. The company offers tires and tire tubes for passenger cars, trucks, buses, construction and mining vehicles, industrial machinery, agricultural machinery, aircraft, motorcycles, scooters, etc.
BRDCY pays a $0.61 per share dividend annually, which translates to a 3.31% yield on the current share price. Its four-year dividend yield is 3.54%.
During the nine months ended September 30, 2022, BRDCY’s revenue increased 28.4% year-over-year to ¥2.98 trillion ($22.88 billion). The company’s gross profit grew 21.2% from the prior-year period to ¥1.15 trillion ($8.80 billion). Its operating profit rose 11% year-over-year to ¥307.23 billion ($2.35 billion).
Moreover, the company’s comprehensive income stood at ¥619.91 billion ($4.74 billion), representing a growth of 11.8% year-over-year.
BRDCY’s revenue is expected to rise 321.9% year-over-year to $30.63 billion in the fiscal year ended December 2022. Its EPS is likely to amount to $1.38 for the same year. Moreover, the company has surpassed its consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 11.4% over the past three months to close the last trading session at $18.40.
It’s no surprise that BRDCY has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
BRDCY also has an A grade for Quality and Stability and a B for Value and Growth. It is ranked #4 in the Auto Parts industry.
Click here to see the BRDCY’s additional ratings for Momentum and Sentiment.
Garrett Motion Inc. (GTX)
GTX designs, manufactures, and sells turbochargers and electric-boosting technologies worldwide for light and commercial vehicle original equipment manufacturers. The company offers light gasoline, diesel, and commercial vehicle turbochargers; and provides automotive software solutions.
On December 6, 2022, GTX declared a quarterly cash dividend of $0.17 per share, which was payable on January 3, 2023.
GTX’s net sales rose 12.6% year-over-year to $945 million in the fiscal third quarter that ended September 30, 2022. Its gross profit grew 9.2% from its prior-year quarter to $178 million. The company’s comprehensive income increased 138% year-over-year to $169 million, while its adjusted EBITDA increased 9% year-over-year to $146 million.
Its revenue is expected to grow 6.1% year-over-year to $956 million in the current fiscal quarter ending March 2023. Its EPS is expected to rise 78% year-over-year to $0.27 in the same quarter.
The stock has gained 26.7% over the past three months to close the last trading session at $7.82.
Its strong fundamentals are reflected in its POWR Ratings. GTX has an overall A rating, which equates to a Strong Buy in our proprietary rating system.
It also has an A grade for Value and B grade for Quality. It is ranked #6 stocks in the same industry.
In addition to the POWR Rating grades I’ve just highlighted, you can see GTX ratings for Growth, Momentum, Sentiment, and Stability.
Stock to Avoid:
Luminar Technologies, Inc. (LAZR)
LAZR, an automotive technology company, provides sensor technologies and software for passenger cars and commercial trucks. It operates in two segments: Autonomy Solutions and Components.
LAZR’s non-GAAP net loss rose 76% year-over-year to $63.35 million for the third quarter that ended September 30, 2022. The company’s loss per share widened 80% year-over-year to $0.18, while its non-GAAP gross loss increased 783.94% year-over-year to $10.13 million.
Analysts expect LAZR’s EPS to decline 77% year-over-year to negative $0.21 for the fourth fiscal quarter ended December 2022. The stock has failed to surpass its EPS estimate in three of the trailing four quarters.
LAZR’s shares have declined 58.9% over the past nine months to close its last trading session at $5.76.
LAZR’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
The stock is graded an F for Value, Stability, and Quality. It is ranked #61 in the same industry.
Beyond the POWR Rating grades stated above, LAZR’s rating for Growth, Sentiment, and Momentum can be accessed here.
ORLY shares were trading at $813.22 per share on Friday afternoon, up $2.37 (+0.29%). Year-to-date, ORLY has declined -3.65%, versus a 3.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More…
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