Should You Add Advance Auto Parts (AAP) to Your Portfolio Now?

Heartland Advisors, an investment management company, released its “Heartland Mid Cap Value Fund” third quarter 2022 investor letter. A copy of the same can be downloaded here. In the third quarter, Mid Cap Value Investor Class returned -5.06% and Mid Cap Value Institutional Class returned -5.03% compared to a -4.93% return for the Russell Midcap Value Index. Initially, in the third quarter, the fund lagged behind its benchmark, the Russell Mid Cap Value Index. But at the end of the third quarter, the fund was able to close the gap compared to the benchmark index and outperformed year-to-date. Security selection contributed to the fund’s performance in the quarter. Financials and Utility sectors outperformed, while Consumer Discretionary, Consumer Staples, and Energy sectors detracted from the performance. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.

Heartland Advisors discussed stocks like Advance Auto Parts, Inc. (NYSE:AAP) in the third-quarter investor letter. Based in Raleigh, North Carolina, Advance Auto Parts, Inc. (NYSE:AAP) is an automotive replacement parts and accessories provider. On October 12, 2022, Advance Auto Parts, Inc. (NYSE:AAP) stock closed at $169.32 per share. One-month return of Advance Auto Parts, Inc. (NYSE:AAP) was 1.01 % and its shares lost 21.20% of their value over the last 52 weeks. Advance Auto Parts, Inc. (NYSE:AAP) has a market capitalization of $10.179 billion.

Here is what Heartland Advisors specifically said about Advance Auto Parts, Inc. (NYSE:AAP) in its Q3 2022 investor letter:

“We also found an opportunity to add to our existing position in Advance Auto Parts, Inc. (NYSE:AAP) as the stock fell and the risk/reward profile improved. Advance underperformed early in the quarter as lower-quality sector peers bounced significantly. In August, shares fell further after the company reported second quarter earnings that disappointed because of weakerthan-expected same-store sales. Furthermore, management reduced its full-year earnings outlook by ~4%, citing softening consumer purchasing patterns within AAP’s “do-it-yourself” business.

The most important driver of Advance Auto’s earnings power seems to be the management team’s ability to improve margin expansion. However, the market remains myopically focused on sales growth. The margin expansion opportunity originates from the consolidation of an overly complex and inefficient distribution network. Management is planning to roll out new distribution center. software through 2023 that will reduce costs, improve network productivity, and enhance customer experience through better inventory availability.

In addition, the auto parts retailing industry tends to be less cyclical than the Consumer Discretionary sector because consumers often hold onto their used cars longer and make necessary repairs rather than buy new vehicles when their financial prospects are weakened. AAP is currently trading at less than 12 times forward earnings, well below the company’s long-term median P/E of more than 15—while having significant room to improve profitability owing to its self-help initiatives.”

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Advance Auto Parts, Inc. (NYSE:AAP) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held Advance Auto Parts, Inc. (NYSE:AAP) at the end of the second quarter which was 29 in the previous quarter.

We discussed Advance Auto Parts, Inc. (NYSE:AAP) in another article and shared the list of high-dividend stocks. In addition, please check out our hedge fund investor letters Q3 2022 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.