LKQ is a leading global distributor of non-OEM automotive parts. Initially formed in 1998 as a consolidator of auto salvage operations in the United States, it has since greatly expanded its scope to include distribution of new mechanical and collision parts, specialty auto equipment, and remanufactured and recycled parts in both Europe and North America. It still maintains its auto salvage business and owns over 70 LKQ pick- your-part junkyards. Separate from the self-service business, LKQ purchases over 300,000 salvage automobiles annually that are used to extract parts for resale. Globally, LKQ maintains approximately 1,700 facilities.
Advance Auto Parts (NYSE:AAP)
AutoZone is the premier seller of aftermarket automotive parts, tools, and accessories to do-it-yourself customers in the United States. The company derives an increasing proportion of its sales from domestic commercial customers, although its presence in its home market is still dominated by its do-it-yourself operation, which accounts for nearly 75% of sales in country. AutoZone also has a growing presence in Mexico and Brazil. AutoZone had 6,767 stores in the U.S. (6,051), Mexico (664), and Brazil (52) as of the end of fiscal 2021.
Advance Auto Parts (NYSE:AAP)
Advance Auto Parts is one of the country’s largest names in aftermarket parts, selling basic vehicle repair and cosmetic supplies directly to consumers. Prior to the decline caused by the COVID-19 collapse, Advance Auto Parts has seen consistently high sales and an exceptionally low P/E ratio of 16.80.
Advance Auto Parts has been making a major push in the commercial sector; 60% of its business now comes from automotive professionals. With consistently high earnings and manageable debt, Advance Auto Parts is a solid choice for aftermarket companies.
Goodyear Tire & Rubber (NASDAQ:GT)
Goodyear Tire & Rubber Co manufactures and sells a variety of rubber tires under the Goodyear brand name. The firm’s tires are used for automobiles, trucks, buses, aircraft, motorcycles, mining equipment, farm equipment, and industrial equipment. The company operates its business through three operating segments representing its regional tire businesses: Americas; Europe, the Middle East and Africa (EMEA); and the Asia Pacific.
O'Reilly Automotive (NASDAQ:ORLY)
O’Reilly is an aftermarket auto part dealer offering both do-it-yourself auto repair tools as well as professional repair supplies. About 60% of the company’s business comes from direct consumers, while the remaining 40% goes to vehicle service professionals. This can make O’Reilly a safer choice during the movement toward online auto part sales.
O’Reilly’s financials are rock solid as well. The company has a P/E ratio of 21.28, which is comparable to Advance Auto Parts. O’Reilly also has significantly less debt than Advance Auto Parts, which makes it a more appealing long-term portfolio addition.
When most investors decide that they want to invest in the automotive industry, they start purchasing stocks from Ford Motor Company (NYSE: F), Mitsubishi (TYO: MSBHY), Nissan (NASDAQ: NSANY) or another major auto manufacturer. But, what about the companies that help keep these vehicles safe, functioning and on the road?
In addition to vehicle manufacturers, you can also invest in companies that sell parts and tools to repair and improve the vehicles themselves. Auto parts stocks allow you to invest in vehicle part distributors — and many of these investment opportunities represent hot stocks under $20.
Quick Look at the Best Auto Parts Stocks:
Overview: Auto Parts Stocks
An auto parts stock is a stock that represents a company that manufactures or distributes vehicle repair, maintenance or improvement parts. An auto part company might sell parts only to vehicle manufacturers (original equipment manufacturers), or it might offer products directly to consumers (aftermarket sales).
Specialized auto part manufacturers may focus resources on creating parts for a specific type or make of vehicle. This is especially true when it comes to luxury cars, which often require expensive, specialized parts.
The aftermarket auto parts industry is worth an estimated $130 billion. Some products sold by aftermarket auto parts manufacturers include:
- Brake pads
- Oxygen sensors
- A/C refrigerant systems
- Spark plugs
- Accessories used for cosmetic upkeep or upgrades (wash and wax materials, window tinting, etc.)
Auto parts stocks have the potential to do better during periods of recession and economic downturn. When new auto sales slip, more consumers who would have purchased a new car may be more incentivized to fix up their current vehicle. This leads to higher part sales, which can cause the auto parts stock market to outpace the stocks of vehicle manufacturers.
Many auto part manufacturers and distributors are now also offering specialized servicing options to commercial customers. This in-person service helps them combat major online retailers like Amazon (NYSE: AMZN) and Walmart (NYSE: WMT), which don’t have the technical knowledge or as many storefronts to offer such expertise.
Best Online Brokers for Auto Parts Stock
No matter if you’re shopping for auto parts stocks or hunting for bargain stocks under $5, you need a brokerage account before you begin investing. An online broker will help you facilitate your buy and sell orders — and many brokers are now offering $0 commissions on trades. If you don’t already have a brokerage account, consider our favorites below.
Features to Look for in an Auto Parts Stock
Not every auto parts stock is equally as valuable. When you compare auto parts stocks, look for these key features:
- A low P/E ratio: A price-earnings (P/E) ratio is a metric used to compare the current price of a stock to the company’s current earnings. If a P/E ratio is low, it may indicate that the stock is undervalued — which means more potential for profit. On the other hand, if the P/E ratio is high, it may indicate that the stock is overvalued.
- A reasonable D/E ratio: Even the most successful company may need to borrow money in a time of recession. A company’s debt-to-equity (D/E) ratio indicates what proportion of shareholders’ funds is being used to finance assets. A low D/E ratio means that a company has a manageable level of debt. A high D/E ratio can mean serious financial trouble ahead.
- A plan to combat the online market: Online retailers like Amazon and Alibaba (BABA) have taken a bite out of nearly every consumer-facing industry, from fashion to cleaning products. These companies have now also begun to take a bite out of the aftermarket auto parts industry.
Before you invest in an auto parts stock that primarily deals in aftermarket sales, research the company’s strategy to fight back against the march of online parts retailers. Whether it’s a comprehensive in-person repair center, expanded online sales or exclusive parts for luxury vehicles, make sure the companies you invest in have a plan.
Adding Auto Parts to Your Portfolio
A few auto parts stocks can be the perfect addition to any short-term or long-term investing goal. Remember, you should never put all of your investing “eggs” in one basket. If you do decide that you want to add auto part stocks to your portfolio, be sure that they only comprise a small percentage of your total allocation.
Frequently Asked Questions
Who is the largest auto part retailer?
Autozone is the largest autoparts retailer. They have 5,914 locations across all 50 states.
Are auto parts stocks good during inflation?
Yes, auto parts stocks are generally good during inflationary times because people tend to repair their cars rather than purchase now ones.
Are auto parts stocks good for short-term or long-term investors?
Auto parts stocks are good for both short-term and long-term investments.