5 Best Auto-Parts Stocks to Buy for 2021

Below we presented the list of 5 best auto-parts stocks to buy for 2021. For a detailed discussion and a more comprehensive list see the 10 Best Auto-Parts Stocks to Buy for 2021.

5. BorgWarner Inc. (NYSE: BWA)

As of the end of the third quarter, 30 hedge funds in our system had BorgWarner Inc. (NYSE: BWA) shares in their portfolios. The collective worth of these investments is $797 million.  Ric Dillon’s Diamond Hill Capital is the top stakeholder in the company, with 9,965,259 shares worth over $386.05 million.

BorgWarner Inc. (NYSE: BWA) shares are down over 11% year to date. In October, the company completed its acquisition of Delphi Technologies. The deal is expected to give BorgWarner a strong advantage in the electrified propulsion systems market. On Dec. 21, RBC Capital analyst Joseph Spak maintained a Hold rating for BorgWarner stock with a price target of $40. The analyst expects the company to post EPS of $0.54 for the fourth quarter of 2020.

4. Advance Auto Parts, Inc. (NYSE: AAP)

Activist investor Jeffrey Smith’s Starboard Value LP owns 1,596,921 shares of Advance Auto Parts, Inc. (NYSE: AAP), worth $245.13 million. Overall, 42 hedge funds in our database have stakes in the North Carolina-based company. Advance Auto Parts operates nearly 5,000 stores in North America. Earlier in December, Bank of America gave bullish comments with a Buy rating for the stock. Morgan Stanley, which has a $190 price target and an Overweight rating for Advance Auto Parts, said in November that Advance Auto’s is performing well, especially in the DIY market. The firm increased its targets for the company in the light of its excellent performance. Morgan Stanley sees 40+ bps of EBIT margin upside in 2021/2022 for Advance Auto.

In its Q1 2020 Investor Letter, Diamond Hill Capital said the following about Advance Auto Parts:

“Advance Auto Parts, Inc. is a leader in the automotive aftermarket parts retail market where the top companies produce some of the best margins in all of retail. Following a complex acquisition in 2014, Advance underperformed and lost market share under the leadership of a previous management team. The company is executing well on a plan to gain market share and materially improve margins.”

3. LKQ Corporation (NASDAQ: LKQ)

Illinois-based LKQ Corporation (NASDAQ: LKQ) ranks third on the list of 10 best auto-parts stocks to buy for 2021, as 51 hedge funds in our database ended the third quarter with stakes in the company, up from 44 funds a quarter earlier. The collective value of these investments is $1.38 billion. In October, LKQ beat analysts’ estimates for the third quarter, posting a non-GAAP EPS of $0.75 and revenue of $3.05 billion.   LKQ stock was downgraded on Dec. 30 by BidaskClub to Buy from Hold.

Madrid, Spain-based venture capital firm Bonsai Partners, which posted a 63.3% return in the quarter (net of fees), said the following about LKQ in their Q3 Investor Letter.

“LKQ is the largest provider of alternative collision and mechanical automotive parts in the United States. In Europe, they are the leading distributor of general automotive maintenance parts and supplies.”

2. AutoZone, Inc. (NYSE: AZO)

Ken Griffin’s Citadel Investment Group is one of the 53 hedge funds in Insider Monkey’s database that own AutoZone shares as of the end of the third quarter. The hedge fund owns 182,633 shares of the company, worth $215.1 million. In December, AutoZone reported a 12.9% increase in its fiscal first-quarter domestic same store sales, above the growth estimates of 10.9%. The stock was upgraded by Jefferies to Buy from Hold.  The firm sees long-term growth potential for AutoZone in the do-it-for-me market while the DIY market, which brings in 78% sales for AutoZone, also looks promising.

Jefferies said that AutoZone’s aggressive stock buyback programs could also help the company’s EPS grow in the future. On Dec. 15, AutoZone authorized to buy back an additional $1.5 billion of common stock.

AutoZone shares have gained 4.47% over the last 6 months.

1. O’Reilly Automotive Inc (NASDAQ: ORLY)

Missouri-based O’Reilly Automotive Inc (NASDAQ: ORLY) ranks 1st on the list of 10 best auto-parts stocks to buy for 2021. Out of 816 hedge funds tracked by Insider Monkey, 58 held positions in the company as of the end of the third quarter, compared to 61 funds in the previous quarter. Earlier in December, Bank of America gave bullish comments about O’Reilly Automotive with a Buy rating. The firm said that the company has a relatively high exposure to the recovering pro customer base, with strong cash flow generation throughout the coronavirus crisis.

In November, investment firm Oppenheimer upgraded the stock to Outperform from Market Perform. The firm cited rising vehicle ownership, improvement in miles driven and rebounding commercial activity for the stock rating upgrade. We presented Qualivian Investment Partners’ detailed ORLY thesis recently. Here is an excerpt:

ORLY is currently trading at 21.5X NTM5 P/E and 1.0X NTM relative P/E to the market, somewhat richer compared to its historical ranges in absolute terms and quite a bit cheaper on relative terms.

ORLY has historically traded at a premium to the S&P 500 given its superior growth and return profile: ─ 10-Year average for NTM P/E: 19.8X (with a range of 16.8X to 22.7X at +/- 1SD around the mean). ─ 10-year average for NTM P/E relative to the S&P500: 1.3X (with a range of 1.1X to 1.5X at +/- 1SD around the mean).

ORLY meets our requirements of being a quality compounder: (1) it has sustainable competitive advantage, (2) has good reinvestment opportunities, and (3) has demonstrated excellent capital allocation.

Please also see 10 Best Auto Stocks To Buy Now and 10 Best Value Stocks To Buy Now.

Follow us on Twitter: https://twitter.com/insidermonkey