While most major automaker stocks fell on Thursday, auto parts retailers and wholesalers were among the session's best-performing stocks as auto-import tariffs make used cars an even cheaper alternative.
IBD's retail and wholesale auto parts industry group climbed more than 3%, the second-best-performing industry group Thursday afternoon. The group was already in the top 40 of 197 industries, up 14.5% so far this year.
President Donald Trump late Wednesday announced 25% tariffs on auto imports, which analysts say will no doubt raise the selling price of new vehicles. Wedbush Securities analyst Dan Ives says they could add as much as $10,000 to the price of a new car.
A report from UBS Thursday echoed concerns about the impact on the auto industry, adding, "the tariffs could also disrupt supply chains, deter investments, and significantly raise consumer prices."
Sticker-shocked car buyers are more likely to keep their cars longer. That would mean more trips to the mechanic and the purchase of more replacement parts. It would also mean dealerships buying and fixing more used cars to sell on their lots or websites.
Morningstar analyst Noah Rohr said in an email to IBD that tariffs may weigh on new-vehicle sales in the U.S. and give vehicle owners the incentive to spend more time and money repairing their existing vehicles. The new tariffs could prompt an increase in aftermarket auto parts price as well, although consumer demand for auto parts is often a nondiscretionary cost, he added.
"If materials used in new car production are tariffed in such a way that prices rise for consumers, that could compel drivers to keep their older vehicles on the road longer, which would be a benefit to the aftermarket space," D.A. Davidson analyst Michael Baker wrote in a March 12 client note.
"Historically, the auto parts space has successfully passed cost increases through to consumers without much unit degradation. In that way, inflation helps drive (comparable sales)," he added.
Auto Zone, O'Reilly Lead Auto Parts Group
AutoZone and O'Reilly Automotive, two of the largest auto parts retailers, made all-time highs Thursday. Both fell modestly Friday.
O'Reilly broke out past a 1,283.96 buy point in late January. The stock is now extended from the entry and from a rebound off the 10-week moving average earlier this month.
AutoZone is 11% above its most recent buy point at 3,416.71, from a January breakout, according to MarketSurge pattern recognition.
The stock has outperformed despite a deceleration in quarterly earnings growth from 19% to 17%, 8%, 4%, -1% and -2% over the past six quarters, according to FactSet. Analysts, however, expect the auto parts retailer to return to profit growth starting with the current quarter.
D.A. Davidson's Baker names AutoZone a "Best-of-Breed Bison." He cited customer preference for quality brands, the industry's resilience in economic downturns, market-share gains and tariff advantages.
O'Reilly's EPS growth has decelerated from 17% to 3% in the past six quarters, while sales growth went from 11% to as little as 3% over the same period, FactSet data shows.
Nonetheless, on March 17, BofA Securities added O'Reilly to its U.S. 1 list, where it puts its best investment ideas from the pool of companies the firm covers. BofA did not give details, however.
Sales growth at both retailers has been in the single digits the past several quarters.
Auto Parts Stocks Trending Up Since June
Still, shares of both industry leaders have been trending higher since last June, and their relative strength lines are at new highs.
Advance Auto Parts rallied nearly 8% Thursday in heavy trading but remained below its 50-day and 200-day lines. It fell about 4% Friday. Most of the 11 stocks in the group are below their 50-day lines. Most of the industry group's strength rests on AutoZone, O'Reilly and Advance Auto Parts.
Driven Brands — the parent company of Meineke repair shops, Maaco auto body and other car-service chains — has the highest Composite Rating (95) of the group and is the only one currently actionable. Shares remain in the buy zone from the 16.93 buy point of a double-bottom base.
The company ended a string of declining earnings in the second quarter of 2024, when EPS climbed 21%. EPS jumped 30% and 58% the next two quarters, per FactSet. Analysts expect 2025 earnings to grow 6.4%.
Driven Brands stock has a 21-day average true range (ATR) of 3.56%. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks that tend to make large jumps or dives in daily action, the kind that can trigger sell rules and shake investors out of a stock, have a high ATR. Stocks that tend to make more incremental moves have lower ATRs. In the current, unpredictable market, IBD suggests stocks with ATRs of 3% or below.
O'Reilly has an ATR of 2.21%, AutoZone's is 2.26% and Advance Auto's ATR is 4.85%.
