3 Under-the-Radar Auto Parts Stocks to Buy for Long-Term Growth


  • These three auto parts stocks have historically outperformed the market.
  • Genuine Parts (GPC): This auto parts distributor has increased its dividend for 68 consecutive years.
  • AutoZone (AZO): An auto parts retailer that has figured out the recipe for long-term outperformance.
  • O’Reilly Automotive (ORLY): The company hasn’t had a year of declining sales in more than three decades.
Auto Parts Stocks to Buy - 3 Under-the-Radar Auto Parts Stocks to Buy for Long-Term Growth

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Auto parts stocks often fly under the radar, getting little to no investor attention compared to their larger industry peers. While it’s the big-name car manufacturers that consistently grab headlines and investor focus, auto parts stocks have historically outperformed.

Unlike automotive manufacturers, whose sales often fluctuate due to the industry’s cyclical nature, auto parts distributors and retailers experience more stable sales. Even during economic downturns, when new car sales decline, there remains a consistent demand for auto parts. This is because people continue to maintain and repair their existing vehicles, rendering the sales of auto parts relatively recession-proof.

The following three stocks clearly display this quality, which has contributed to their consistent outperformance in the market over the years. This trend is poised to persist in today’s market, making these three names some of the best auto parts stocks to buy.

Genuine Parts (GPC)

Hands holding a smartphone with the Genuine Parts (GPC) logo displayed.
Source: Piotr Swat / Shutterstock.com

Genuine Parts (NYSE:GPC) is one of these stocks that consistently receives great praise. The company has built an excellent reputation over the years, especially among income-oriented investors. This is due to its impressive dividend growth history, which few companies can match.

With an uninterrupted streak of 68 years of dividend increases, Genuine Parts is second only to American States Water (NYSE:AWR), which has increased its dividend for 69 years. This legendary track record, backed by consistent revenue and earnings growth over the years, illustrates the company’s ability to flourish even in tough market environments.

Today’s market has seen a noticeable uptick in average car prices, primarily attributed to parts shortages and constrained vehicle inventory. For this reason, demand for automotive components has been remarkably strong. Evidently, Genuine Parts achieved record sales of $23.1 billion last year. This trajectory appears poised to continue throughout the current year, as the company anticipates further sales growth ranging between 3% and 5%.

AutoZone (AZO)

An AutoZone (AZO) storefront in Saint Augustine, Florida.
Source: Robert Gregory Griffeth / Shutterstock.com

AutoZone (NYSE:AZO) has consistently beaten the market over the decades. Take any 10-year period since the company IPO’d in 1991, and chances are that AutoZone has likely outperformed the general market indices. Due to its long and consistent outperformance, I became a shareholder in AutoZone a few years ago and couldn’t have been happier.

AutoZone’s outstanding outperformance can be attributed to management’s stellar execution of what is, surprisingly enough, a very simple business model. AutoZone’s strategy is incredibly straightforward: Open new stores, consistently grow and maximize same-store sales, and return all excess funds to shareholders through share repurchases. Over time, this simple, repetitive model has resulted in enormous compounding returns.

To illustrate, AutoZone has grown its sales every year since it went public 33 years ago. Additionally, since beginning its stock repurchase program in 1998, AutoZone has reduced its share count by an absurd 89%. With such a consistent revenue growth track record and focus on rewarding shareholders, it’s easy to extrapolate how the stock has managed to consistently outperform the market.

O’Reilly Automotive (ORLY)

The front of an O'Reilly Auto Parts (ORLY) store.
Source: Jonathan Weiss / Shutterstock.com

O’Reilly Automotive (NYSE:ORLY) is AutoZone’s cousin. Their business models and approaches to growth and shareholder returns mirror each other. By executing the proven strategy I just mentioned, ORLY stock has achieved equally impressive, market-beating returns over the year.

Like AutoZone, O’Reilly has grown its sales every year since it went public in 1993. This is another example of how auto parts sales tend to remain highly resilient regardless of the underlying condition of the economy. And, again, like AutoZone, O’Reilly has repurchased and retired a not-as-impressive but still massive 58% of its outstanding shares. However, note that O’Reilly’s focus on repurchases began later, in 2011—hence the difference.

With the company’s financials set to benefit from the favorable dynamics of today’s auto parts market, I view O’Reilly as another one of the best stocks to buy in the space. This is why, besides holding AZO stock, I also recently bought some ORLY stock.

On the date of publication, Nikolaos Sismanis held long positions in AZO and ORLY. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Nikolaos Sismanis is a professional research analyst with five years of experience in the field of equity research and financial modeling. Nikolaos has authored over 1,000 stock-related articles that focus on uncovering deep value opportunities, identifying growth stocks at reasonable valuations, and shining a spotlight on overlooked international equities.

Article printed from InvestorPlace Media, https://investorplace.com/2024/05/3-under-the-radar-auto-parts-stocks-to-buy-for-long-term-growth/.

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