Liang Feng: The auto-parts retailers began 2014 with the wind at their backs. Since last year's harsh winter weather added to vehicle wear and tear and increased aftermarket demand, all four of the auto-parts retailers that we cover have performed well as a result--with AutoZone (AZO) and Genuine Parts (GPC) up over 5% and Advance (AAP) and O'Reilly (ORLY) up over 15%.
However, sales have begun to decelerate as the weather tailwind diminished. And many investors have grown concerned that rising new vehicle sales could reverse the aftermarkets growth.
We remain very positive on the four large auto-parts retailers, however, since they benefit from narrow economic moats and can leverage their cost advantages to capture incremental share.
Even if new vehicle sales do rise, most pre-owned vehicles are sold back to used buyers who continue to drive them. [Pre-owned vehicles] are lasting longer than ever and are benefiting from rational selling prices in the new market, which has buffered used vehicle values.
We would wait for a larger margin of safety with our cheapest name, Advance, only trading at a 4% discount to our fair value. However, we view all of the four large auto-parts retailers as very high-quality firms. And we would take advantage of an opportunity, if shares trade down due to cyclical concerns.