AAP Should Perform Well In Stagflation


For a while I’ve been looking for a spot to pick up the auto parts retailers Autozone (AZO), O’Reilly (ORLY) and Advanced Auto Parts (AAP) because I think they will perform well in stagflation. Auto parts are necessities as people need to drive to get to work and ferry their kids to and from schools. So while consumers may cut back on eating out or new clothes, they won’t cut back on maintaining their cars. In addition, in tough economic times like a recession consumers are more likely to repair their existing cars than buy new ones. My issue has been that the stocks have been strong and not given me an opening. However, action in the sector in the last couple of days has provided an entry.

Advanced Auto Parts (AAP) – the smaller of the three chains with a market cap of ~$10 billion – reported 1Q22 earnings after the close Monday. While comps rose only 0.6% they were facing extraordinarily tough comparisons as comps were +24.7% in 1Q21. Therefore, as AAP pointed out in its press release, its two year stack is +25.3%. AAP guided full year comps to +1% to +3% and EPS to $13.30-$13.85. At a closing price of $183.24 Monday, that works out to just 14x current year guidance. Throw in a 3.27% dividend an AAP looks like a great buy to me.

AZO is reporting later this morning so keep an eye on it as well.

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