All the chatter between Washington and Detroit is focused on the GM “re-invention,” which frankly gives me the creeps. The fact that the government is telling GM what kind of cars to make is troubling. The whole situation is shaping up to be a giant mess.
But there is hope for investors interested in the auto sector. With the upheaval in the new car market combined with consumer belt-tightening caused by this deep recession, it is full throttle for the do-it-yourself auto parts retailers.
On Tuesday, Pep Boys – Manny, Moe & Jack’s (PBY) posted better-than-expected earnings for the first quarter. In fact, the company’s profits more than doubled.
Now one thing we have to be careful not to do is read too much into the profit story for PBY, as much of the company’s first quarter gains came from bond repurchases and cost cutting.
The all-important same-store sales numbers actually were down from last year. Still, Pep Boys managed to weather this recession by posting net income of $10.9 million, or 21 cents a share in Q1, compared to $4.7 million, or 9 cents, a year ago.
I rate PBY a B, or buy.
AutoZone Offers More Profit Potential in the Auto Supply Sector
My second auto supply stock is AutoZone (AZO).
Read more about why AutoZone is Booming
On May 29, AutoZone reported that earnings of $173.7 million, or $3.13 per share, for the 12 weeks ended May 9, up from $158.6 million, or $2.49 per share, a year ago. Sales rose 9% to $1.66 billion from $1.52 billion a year earlier.
The profit gains were fueled by an increase in replacement-part sales, as consumers opted for holding on to their own cars longer, rather than buying new cars. I don’t think this should come as any surprise to anyone watching the auto industry, especially considering new vehicle sales were down 37% for the first four months of the year, according to Autodata Corp.
I rate AZO an A, making it a strong buy.
At the time of publication, Louis Navellier held a position in AutoZone (AZO).
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