by Zacks Investment Research | March 24, 2014 9:31 am
Every year right about this time I get the itch. For most people that live in the Midwest it’s the itch to get outside and runaround. It’s the urge to shake off that cabin fever that has plagued you for the last four or five months. Maybe that’s why Chicago goes nuts and dyes the river green on St. Patty’s Day. We’ve been locked up for so long we just have to get out there and do something crazy. (That river’s green most of the year anyway.)
I’ve got a different brand of crazy. This time of year I open up the pocketbook, and usually the savings account, and spend money on new summer tires, refilling the nitrous bottle, new stereo equipment, basically anything that will upset my girlfriend. As I thumbed through the racing parts catalogue earlier this week it got me thinking. Maybe I’m not the only one who is cracking open these pages looking for parts.
This winter was by any measure one of the worst in recent history. I took a peak at the average snowfall map and laughed. Chicago is supposed to get between 24 and 36 inches of snow on average. Guess where we are as of last week? 79 inches. It is the 3rd highest total snowfall on record.
Even though my car doesn’t see the snow, the SUVs and pickups with plows attached sure got a whole lot of work this winter. There must be some publicly traded company that sells parts for trucks that plow and I’m sure they are having a great earnings season. What I found was the Captain Obvious of all stock tickers. Take a guess. You got it, PLOW, the ticker for the company Douglas Dynamics (PLOW).
Year over year 4Q saw a 159% increase in sales, mostly attributable to the increase in snowfall early in the season. After living through what happened in 1Q 2014 I would bet that this quarter sees some impressive numbers as well. And while getting a new plow may not be as exciting as a new set of Mickey Thompson 305 Drag Radials, it is good for Douglas Dynamics.
PLOW is a Zacks Rank #1 (Strong Buy) with two analysts raising current year forecasts based on the strong snowy season. Consensus for the year has risen from 79 cents to 95 cents per share. Last quarter’s earnings surprise of 52% is another big reason for the rank.
PLOW just made a huge run from near $14 through previous resistance at $17, approaching $18.50 before finally beginning to pull back. This increased volatility since July of last year was previously unheard of for Douglas Dynamics. A slow, steady uptrend saw appreciation from $13 to $17 without any real scary pull backs at all. The dip down below the 25 day moving average shifted by 5 days (25×5 SMA) in January lasted less than a month.
Currently the stock is still in the middle of an intermediate term uptrend, with the 25×5 below the price and in an upward slope. The extreme overbought stochastics are begging for a further sell off to support. Given the fact that $17 was a level of resistance previously, look for that to be support for PLOW should the stock get back down to that level.
Things have been good across the board for the industry. Right now the AUTO/TRUCK-REPLACEMENT PARTS industry is number one in our Zacks Industry Rank. So perhaps snow plows aren’t the only parts getting replaced this winter. Being the gear head that I am, I find myself following the automakers often.
One stat that stands out is that the average age of cars on the road today. It’s now over 10 years. Eventually this pent up demand from the Great Recession has to find its way out, but until then people would rather fix their old cars than buy new ones. If you’re fixing old cars, you need parts. A major supplier of parts to Advance Auto Parts (AAP) and AutoZone (AZO) is Dorman Products (DORM).
Dorman carries a Zacks Rank #2 (Buy) after three analysts raised current year estimates in the last 30 days. The Dorman story has been slow, steady, consistent earnings growth over the years. A quick look at the price and consensus chart shows the solid growth numbers.
From a technical standpoint, DORM is in a similar position to PLOW. However, DORM is a slower and steady story. A failed sustained breakout of $50 saw the stock price retreat down below $47 before finding enough strength to kick off a rally to a new high at $56. Then there was another small seesaw down below $50 and back up through $56 to new highs at $60.
What this stock’s history tells me is that support and resistance levels are not firm and are relatively wide zones. It has a cyclical nature and doesn’t adhere to strict trend lines but overall has a nice, fluttery, upwards motion. I wouldn’t be surprised given the stochastic sell signal from overbought territory earlier this month, if the stock comes back down to test as low as $54 before heading higher.
Rounding out my top picks in this leading industry is Zacks Rank #1 (Strong Buy) Motorcar Parts of America (MPAA). MPAA specializes in manufacturing alternators and starters for both domestic and imported autos. Earnings estimates have been rising since last summer, helping the stock turnover from a disappointing 2012. This year earnings are expected to come in at $1.37 compared to an 85 cent loss per share last year. The growth has been so good recently that MPAA has surprised to the upside by no less than 33% over the last 3 quarters. Hopefully the trend continues and we see another beat this quarter.
The technical picture for MPAA is the best of the bunch. A steady uptrend, finding strength at the 25×5 each time, almost perfectly aligned with a stochastic buy signal from oversold territory every time. The most recent retest of the uptrend has taken place in the last few days, with the stock dipping just below $23 before beginning this latest run. Right now you have the stock trading just above the 25×5 and just below resistance at $27. This trading set up looks great right now and a tight stop could easily be placed just below $24 with a target at $30, close to 20% above where we sit now for a very attractive risk versus reward.
DORMAN PRODUCTS (DORM): Free Stock Analysis Report
MOTORCAR PARTS (MPAA): Free Stock Analysis Report
DOUGLAS DYNAMIC (PLOW): Free Stock Analysis Report
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Zacks Investment Research
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