Dorman Products Inc. (DORM), AutoZone, Inc. (AZO): Which Auto Parts Supplier Can Make You Rich?

In the coming years, Dorman will heavily fight for maintaining its high margins. Customer consolidation in the automotive industry causes problems for Dorman. As customers consolidate, they have more negotiating power with Dorman and are sometimes able to get extended payment terms or other benefits. This year, however, has seen a flurry of good news for new car sales, as the growth figures from major American car manufacturers looks encouraging. In its latest product announcement releases, Dorman has shown adaptability by introducing electrical components into its product mix, especially since these are present in the newer cars. This not only allows the parts being offered by Dorman to be perfectly compatible with new cars, but it also encourages customers to buy the more inexpensive electrical components to replace those which are faulty instead of going for the option of replacing the entire assembly.

AutoZone, Inc. (NYSE:AZO) has reached an exceptional rate of share buybacks and EPS growth by stretching its debt beyond any reasonable limits. If Autozone ignores reality and maintains its current rate of share buybacks, it will likely be risking bankruptcy. However, the company’s management currently doesn’t show any signs of yielding to reality and hence the worst-scenario is becoming more probable.

Advance Auto Parts, Inc. (NYSE:AAP) is planning to open approximately 180 new stores in 2013 in order to achieve more efficient distribution of parts and less administrative overhead. The organization reports its brilliant performance as it continues to post higher profits when compared to the industry averages, and is expected to earn higher profits in the future.

Final verdict

With the company’s core strategy of widening its product base and entering new markets for replacement component sales, I suggest buying Dorman Products. It will continue to add value to portfolios, just as it has been doing for the last ten years. If one was holding this stock five years ago, then the stock has clearly fulfilled its promise of growth and sustainability. Looking forward to the increases in new car sales and the company’s product mission of providing parts for these newer models gives me confidence that Dorman Products is in for more vertical travel on the price chart.

The article Which Auto Parts Supplier Can Make You Rich? originally appeared on Fool.com is written by Marina Avilkina.

Marina Avilkina has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Marina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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